Correlation Between Trane Technologies and Lennox International

Can any of the company-specific risk be diversified away by investing in both Trane Technologies and Lennox International at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Trane Technologies and Lennox International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Trane Technologies plc and Lennox International, you can compare the effects of market volatilities on Trane Technologies and Lennox International and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Trane Technologies with a short position of Lennox International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and Lennox International.

Diversification Opportunities for Trane Technologies and Lennox International

0.78

Correlation Coefficient

Trane Technologies  Lennox International

Poor diversification

The 3 months correlation between Trane and Lennox is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International and Trane Technologies is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Trane Technologies plc are associated (or correlated) with Lennox International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennox International has no effect on the direction of Trane Technologies i.e., Trane Technologies and Lennox International go up and down completely randomly.

Pair Corralation between Trane Technologies and Lennox International

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to under-perform the Lennox International. But the stock apears to be less risky and, when comparing its historical volatility, Trane Technologies plc is 1.23 times less risky than Lennox International. The stock trades about -0.05 of its potential returns per unit of risk. The Lennox International is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  61,887  in Lennox International on December 27, 2024 and sell it today you would lose (3,999) from holding Lennox International or give up 6.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Trane Technologies plc  vs.  Lennox International

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Lennox International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lennox International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Lennox International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Trane Technologies and Lennox International

The main advantage of trading using opposite Trane Technologies and Lennox International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies position performs unexpectedly, Lennox International can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lennox International will offset losses from the drop in Lennox International's long position.

The idea behind Trane Technologies plc and Lennox International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.