Correlation Between Advanced Drainage and Lennox International

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

Diversification Opportunities for Advanced Drainage and Lennox International

-0.36

Correlation Coefficient

Advanced Drainage  Lennox International

Very good diversification

The 3 months correlation between Advanced and Lennox is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International 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 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 Advanced Drainage i.e., Advanced Drainage and Lennox International go up and down completely randomly.

Pair Corralation between Advanced Drainage and Lennox International

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Lennox International. In addition to that, Advanced Drainage is 1.65 times more volatile than Lennox International. It trades about -0.05 of its total potential returns per unit of risk. Lennox International is currently generating about 0.19 per unit of volatility. If you would invest  56,088  in Lennox International on September 1, 2024 and sell it today you would earn a total of  10,625  from holding Lennox International or generate 18.94% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Lennox International

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 latest fragile performance, the Stock's primary 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

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Lennox International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Drainage and Lennox International

The main advantage of trading using opposite Advanced Drainage and Lennox International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Drainage 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 Advanced Drainage Systems 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.