Correlation Between Louisiana Pacific and Azek

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

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

Diversification Opportunities for Louisiana Pacific and Azek

0.55

Correlation Coefficient

Louisiana Pacific  Azek

Very weak diversification

The 3 months correlation between Louisiana and Azek is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Louisiana Pacific and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company and Louisiana Pacific 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 Louisiana Pacific are associated (or correlated) with Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Louisiana Pacific i.e., Louisiana Pacific and Azek go up and down completely randomly.

Pair Corralation between Louisiana Pacific and Azek

Considering the 90-day investment horizon Louisiana Pacific is expected to generate 0.63 times more return on investment than Azek. However, Louisiana Pacific is 1.6 times less risky than Azek. It trades about 0.58 of its potential returns per unit of risk. Azek Company is currently generating about 0.16 per unit of risk. If you would invest  9,326  in Louisiana Pacific on July 10, 2024 and sell it today you would earn a total of  1,495  from holding Louisiana Pacific or generate 16.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Louisiana Pacific  vs.  Azek Company

Louisiana Pacific

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Louisiana Pacific are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Louisiana Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Azek Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Azek is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Louisiana Pacific and Azek

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

The idea behind Louisiana Pacific and Azek 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.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.