Correlation Between Azek and LIXIL

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

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

Diversification Opportunities for Azek and LIXIL

0.33

Correlation Coefficient

Azek  LIXIL

Weak diversification

The 3 months correlation between Azek and LIXIL is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and LIXIL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIXIL and Azek 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 Azek Company are associated (or correlated) with LIXIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIXIL has no effect on the direction of Azek i.e., Azek and LIXIL go up and down completely randomly.

Pair Corralation between Azek and LIXIL

If you would invest  4,144  in Azek Company on September 4, 2024 and sell it today you would earn a total of  1,155  from holding Azek Company or generate 27.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

Azek Company  vs.  LIXIL

Azek Company

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek disclosed solid returns over the last few months and may actually be approaching a breakup point.

LIXIL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LIXIL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, LIXIL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Azek and LIXIL

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

The idea behind Azek Company and LIXIL 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.