Correlation Between Vestas Wind and Lennox International
Can any of the company-specific risk be diversified away by investing in both Vestas Wind 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 Vestas Wind and Lennox International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vestas Wind Systems and Lennox International, you can compare the effects of market volatilities on Vestas Wind 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 Vestas Wind with a short position of Lennox International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vestas Wind and Lennox International.
Diversification Opportunities for Vestas Wind and Lennox International
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Vestas and Lennox is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International and Vestas Wind 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 Vestas Wind 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 Vestas Wind i.e., Vestas Wind and Lennox International go up and down completely randomly.
Pair Corralation between Vestas Wind and Lennox International
Assuming the 90 days horizon Vestas Wind Systems is expected to under-perform the Lennox International. But the pink sheet apears to be less risky and, when comparing its historical volatility, Vestas Wind Systems is 1.03 times less risky than Lennox International. The pink sheet trades about -0.36 of its potential returns per unit of risk. The Lennox International is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest 48,764 in Lennox International on January 20, 2024 and sell it today you would lose (2,900) from holding Lennox International or give up 5.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vestas Wind Systems vs. Lennox International
Performance |
| Timeline |
| Vestas Wind Systems |
| Lennox International |
Vestas Wind and Lennox International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vestas Wind and Lennox International
The main advantage of trading using opposite Vestas Wind and Lennox International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind 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.| Vestas Wind vs. GE Aerospace | Vestas Wind vs. Eaton PLC | Vestas Wind vs. Illinois Tool Works | Vestas Wind vs. Parker Hannifin |
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Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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