Correlation Between Lennox International and Quanex Building

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

By analyzing existing cross correlation between Lennox International and Quanex Building Products, you can compare the effects of market volatilities on Lennox International and Quanex Building 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 Quanex Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennox International and Quanex Building.

Diversification Opportunities for Lennox International and Quanex Building

-0.15

Correlation Coefficient

Lennox International  Quanex Building

Good diversification

The 3 months correlation between Lennox and Quanex is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Quanex Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanex Building Products 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 Quanex Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanex Building Products has no effect on the direction of Lennox International i.e., Lennox International and Quanex Building go up and down completely randomly.

Pair Corralation between Lennox International and Quanex Building

Considering the 90-day investment horizon Lennox International is expected to generate 0.76 times more return on investment than Quanex Building. However, Lennox International is 1.32 times less risky than Quanex Building. It trades about 0.34 of its potential returns per unit of risk. Quanex Building Products is currently generating about 0.08 per unit of risk. If you would invest  55,401  in Lennox International on July 11, 2024 and sell it today you would earn a total of  5,391  from holding Lennox International or generate 9.73% return on investment over 90 days.

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

Lennox International  vs.  Quanex Building Products

Lennox International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Lennox International may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Quanex Building Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Quanex Building Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Quanex Building is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lennox International and Quanex Building

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

The idea behind Lennox International and Quanex Building Products 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.