Correlation Between Advanced Drainage and Comfort Systems

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

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

Diversification Opportunities for Advanced Drainage and Comfort Systems

0.32

Correlation Coefficient

Advanced Drainage  Comfort Systems

Weak diversification

The 3 months correlation between Advanced and Comfort is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Comfort Systems USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comfort Systems USA and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with Comfort Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comfort Systems USA has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Comfort Systems go up and down completely randomly.

Pair Corralation between Advanced Drainage and Comfort Systems

Considering the 90-day investment horizon Advanced Drainage is expected to generate 18.97 times less return on investment than Comfort Systems. But when comparing it to its historical volatility, Advanced Drainage Systems is 1.44 times less risky than Comfort Systems. It trades about 0.02 of its potential returns per unit of risk. Comfort Systems USA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  43,168  in Comfort Systems USA on May 2, 2025 and sell it today you would earn a total of  27,129  from holding Comfort Systems USA or generate 62.85% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Comfort Systems USA

Advanced Drainage Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Drainage Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Advanced Drainage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Comfort Systems USA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comfort Systems USA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Comfort Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Drainage and Comfort Systems

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

The idea behind Advanced Drainage Systems and Comfort Systems USA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.