Correlation Between Trinity Industries and Miller Industries

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

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

Diversification Opportunities for Trinity Industries and Miller Industries

0.84

Correlation Coefficient

Trinity Industries  Miller Industries

Very poor diversification

The 3 months correlation between Trinity and Miller is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries and Miller Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Miller Industries and Trinity Industries 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 Trinity Industries are associated (or correlated) with Miller Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Miller Industries has no effect on the direction of Trinity Industries i.e., Trinity Industries and Miller Industries go up and down completely randomly.

Pair Corralation between Trinity Industries and Miller Industries

Considering the 90-day investment horizon Trinity Industries is expected to generate 2.6 times less return on investment than Miller Industries. In addition to that, Trinity Industries is 1.12 times more volatile than Miller Industries. It trades about 0.04 of its total potential returns per unit of risk. Miller Industries is currently generating about 0.11 per unit of volatility. If you would invest  2,633  in Miller Industries on August 30, 2024 and sell it today you would earn a total of  4,839  from holding Miller Industries or generate 183.78% return on investment over 90 days.

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

Trinity Industries  vs.  Miller Industries

Trinity Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Trinity Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Miller Industries

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Miller Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, Miller Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trinity Industries and Miller Industries

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

The idea behind Trinity Industries and Miller 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.