Correlation Between Advanced Drainage and AAON

Can any of the company-specific risk be diversified away by investing in both Advanced Drainage and AAON 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 Advanced Drainage and AAON into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advanced Drainage Systems and AAON Inc, you can compare the effects of market volatilities on Advanced Drainage and AAON 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 Advanced Drainage with a short position of AAON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Drainage and AAON.

Diversification Opportunities for Advanced Drainage and AAON

0.71

Correlation Coefficient

Advanced Drainage  AAON

Poor diversification

The 3 months correlation between Advanced and AAON is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and AAON Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAON Inc and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with AAON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAON Inc has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and AAON go up and down completely randomly.

Pair Corralation between Advanced Drainage and AAON

Considering the 90-day investment horizon Advanced Drainage Systems is expected to generate 0.43 times more return on investment than AAON. However, Advanced Drainage Systems is 2.31 times less risky than AAON. It trades about -0.02 of its potential returns per unit of risk. AAON Inc is currently generating about -0.13 per unit of risk. If you would invest  11,467  in Advanced Drainage Systems on December 28, 2024 and sell it today you would lose (348.00) from holding Advanced Drainage Systems or give up 3.03% of portfolio value over 90 days.

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

Advanced Drainage Systems  vs.  AAON Inc

Advanced Drainage Systems

Risk-Adjusted Performance

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 comparatively stable primary indicators, Advanced Drainage is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

AAON Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAON Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Advanced Drainage and AAON

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

The idea behind Advanced Drainage Systems and AAON Inc 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.