Correlation Between Advanced Drainage and Armstrong World

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

Diversification Opportunities for Advanced Drainage and Armstrong World

0.52

Correlation Coefficient

Advanced Drainage  Armstrong World

Very weak diversification

The 3 months correlation between Advanced and Armstrong is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Armstrong World Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong World Indu 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 Armstrong World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong World Indu has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Armstrong World go up and down completely randomly.

Pair Corralation between Advanced Drainage and Armstrong World

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Armstrong World. In addition to that, Advanced Drainage is 1.18 times more volatile than Armstrong World Industries. It trades about -0.04 of its total potential returns per unit of risk. Armstrong World Industries is currently generating about -0.01 per unit of volatility. If you would invest  14,162  in Armstrong World Industries on December 29, 2024 and sell it today you would lose (207.00) from holding Armstrong World Industries or give up 1.46% of portfolio value over 90 days.

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

Advanced Drainage Systems  vs.  Armstrong World Industries

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.

Armstrong World Indu

Risk-Adjusted Performance

Weak

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

Pair Trading with Advanced Drainage and Armstrong World

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

The idea behind Advanced Drainage Systems and Armstrong World Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.