Correlation Between Quanex Building and Trane Technologies

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

By analyzing existing cross correlation between Quanex Building Products and Trane Technologies plc, you can compare the effects of market volatilities on Quanex Building and Trane Technologies 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 Quanex Building with a short position of Trane Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quanex Building and Trane Technologies.

Diversification Opportunities for Quanex Building and Trane Technologies

-0.37

Correlation Coefficient

Quanex Building  Trane Technologies

Very good diversification

The 3 months correlation between Quanex and Trane is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building Products and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and Quanex Building 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 Quanex Building Products are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Quanex Building i.e., Quanex Building and Trane Technologies go up and down completely randomly.

Pair Corralation between Quanex Building and Trane Technologies

Allowing for the 90-day total investment horizon Quanex Building is expected to generate 4.66 times less return on investment than Trane Technologies. In addition to that, Quanex Building is 1.65 times more volatile than Trane Technologies plc. It trades about 0.08 of its total potential returns per unit of risk. Trane Technologies plc is currently generating about 0.62 per unit of volatility. If you would invest  34,530  in Trane Technologies plc on July 11, 2024 and sell it today you would earn a total of  5,120  from holding Trane Technologies plc or generate 14.83% return on investment over 90 days.

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

Quanex Building Products  vs.  Trane Technologies plc

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.

Trane Technologies plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Trane Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Quanex Building and Trane Technologies

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

The idea behind Quanex Building Products and Trane Technologies plc 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 Stocks Directory module to find actively traded stocks across global markets.