Correlation Between Advanced Drainage and Azek

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

Diversification Opportunities for Advanced Drainage and Azek

-0.67

Correlation Coefficient

Advanced Drainage  Azek

Excellent diversification

The 3 months correlation between Advanced and Azek is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company 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 Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Azek go up and down completely randomly.

Pair Corralation between Advanced Drainage and Azek

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Azek. In addition to that, Advanced Drainage is 1.02 times more volatile than Azek Company. It trades about -0.01 of its total potential returns per unit of risk. Azek Company is currently generating about 0.05 per unit of volatility. If you would invest  3,955  in Azek Company on October 2, 2024 and sell it today you would earn a total of  792.00  from holding Azek Company or generate 20.03% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Azek Company

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.

Azek Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Azek is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Advanced Drainage and Azek

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

The idea behind Advanced Drainage Systems and Azek Company 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.