Correlation Between Trane Technologies and Masco

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

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

Diversification Opportunities for Trane Technologies and Masco

-0.52

Correlation Coefficient

Trane Technologies  Masco

Excellent diversification

The 3 months correlation between Trane and Masco is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Trane Technologies i.e., Trane Technologies and Masco go up and down completely randomly.

Pair Corralation between Trane Technologies and Masco

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to generate 1.01 times more return on investment than Masco. However, Trane Technologies is 1.01 times more volatile than Masco. It trades about 0.4 of its potential returns per unit of risk. Masco is currently generating about -0.1 per unit of risk. If you would invest  29,115  in Trane Technologies plc on February 20, 2024 and sell it today you would earn a total of  3,976  from holding Trane Technologies plc or generate 13.66% return on investment over 90 days.

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

Trane Technologies plc  vs.  Masco

Trane Technologies plc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 18 (%) 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.

Masco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Masco is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Trane Technologies and Masco

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

The idea behind Trane Technologies plc and Masco 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.