Correlation Between Trane Technologies and Advanced Drainage

Can any of the company-specific risk be diversified away by investing in both Trane Technologies and Advanced Drainage 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 Advanced Drainage 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 Advanced Drainage Systems, you can compare the effects of market volatilities on Trane Technologies and Advanced Drainage 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 Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and Advanced Drainage.

Diversification Opportunities for Trane Technologies and Advanced Drainage

-0.11

Correlation Coefficient

Trane Technologies  Advanced Drainage

Good diversification

The 3 months correlation between Trane and Advanced is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems 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 Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Trane Technologies i.e., Trane Technologies and Advanced Drainage go up and down completely randomly.

Pair Corralation between Trane Technologies and Advanced Drainage

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to generate 0.6 times more return on investment than Advanced Drainage. However, Trane Technologies plc is 1.68 times less risky than Advanced Drainage. It trades about 0.1 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.01 per unit of risk. If you would invest  26,907  in Trane Technologies plc on October 2, 2024 and sell it today you would earn a total of  10,035  from holding Trane Technologies plc or generate 37.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Trane Technologies plc  vs.  Advanced Drainage Systems

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Trane Technologies is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Trane Technologies and Advanced Drainage

The main advantage of trading using opposite Trane Technologies and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies position performs unexpectedly, Advanced Drainage 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 Advanced Drainage will offset losses from the drop in Advanced Drainage's long position.

The idea behind Trane Technologies plc and Advanced Drainage Systems 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.