Correlation Between Carrier Global and Trex

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

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

Diversification Opportunities for Carrier Global and Trex

0.01

Correlation Coefficient

Carrier Global  Trex

Significant diversification

The 3 months correlation between Carrier and Trex is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Carrier Global Corp and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company and Carrier Global 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 Carrier Global Corp are associated (or correlated) with Trex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trex Company has no effect on the direction of Carrier Global i.e., Carrier Global and Trex go up and down completely randomly.

Pair Corralation between Carrier Global and Trex

Given the investment horizon of 90 days Carrier Global Corp is expected to generate 0.69 times more return on investment than Trex. However, Carrier Global Corp is 1.46 times less risky than Trex. It trades about 0.08 of its potential returns per unit of risk. Trex Company is currently generating about 0.02 per unit of risk. If you would invest  5,528  in Carrier Global Corp on September 4, 2024 and sell it today you would earn a total of  2,101  from holding Carrier Global Corp or generate 38.01% return on investment over 90 days.

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

Carrier Global Corp  vs.  Trex Company

Carrier Global Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carrier Global Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Carrier Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Trex Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trex Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Trex showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carrier Global and Trex

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

The idea behind Carrier Global Corp and Trex 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.