Correlation Between Lennox International and Armstrong World

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

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

Diversification Opportunities for Lennox International and Armstrong World

0.84

Correlation Coefficient

Lennox International  Armstrong World

Very poor diversification

The 3 months correlation between Lennox and Armstrong is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International 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 Lennox International 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 Lennox International 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 Lennox International i.e., Lennox International and Armstrong World go up and down completely randomly.

Pair Corralation between Lennox International and Armstrong World

Considering the 90-day investment horizon Lennox International is expected to generate 1.45 times less return on investment than Armstrong World. In addition to that, Lennox International is 1.27 times more volatile than Armstrong World Industries. It trades about 0.19 of its total potential returns per unit of risk. Armstrong World Industries is currently generating about 0.34 per unit of volatility. If you would invest  12,351  in Armstrong World Industries on September 3, 2024 and sell it today you would earn a total of  3,632  from holding Armstrong World Industries or generate 29.41% return on investment over 90 days.

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

Lennox International  vs.  Armstrong World Industries

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.

Armstrong World Indu

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Armstrong World demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lennox International and Armstrong World

The main advantage of trading using opposite Lennox International and Armstrong World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennox International 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 Lennox International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.