Correlation Between Masco and Trex

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

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

Diversification Opportunities for Masco and Trex

0.01

Correlation Coefficient

Masco  Trex

Significant diversification

The 3 months correlation between Masco and Trex is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company and Masco 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 Masco are associated (or correlated) with Trex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trex Company has no effect on the direction of Masco i.e., Masco and Trex go up and down completely randomly.

Pair Corralation between Masco and Trex

Considering the 90-day investment horizon Masco is expected to generate 0.63 times more return on investment than Trex. However, Masco is 1.59 times less risky than Trex. It trades about 0.06 of its potential returns per unit of risk. Trex Company is currently generating about 0.04 per unit of risk. If you would invest  5,235  in Masco on August 27, 2024 and sell it today you would earn a total of  2,666  from holding Masco or generate 50.93% return on investment over 90 days.

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

Masco  vs.  Trex Company

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Trex Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trex Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Trex may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Masco and Trex

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

The idea behind Masco and Trex 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.