Correlation Between AAON and Builders FirstSource

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Can any of the company-specific risk be diversified away by investing in both AAON and Builders FirstSource 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 AAON and Builders FirstSource into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AAON Inc and Builders FirstSource, you can compare the effects of market volatilities on AAON and Builders FirstSource 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 AAON with a short position of Builders FirstSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAON and Builders FirstSource.

Diversification Opportunities for AAON and Builders FirstSource

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between AAON and Builders is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding AAON Inc and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and AAON 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 AAON Inc are associated (or correlated) with Builders FirstSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Builders FirstSource has no effect on the direction of AAON i.e., AAON and Builders FirstSource go up and down completely randomly.

Pair Corralation between AAON and Builders FirstSource

Given the investment horizon of 90 days AAON Inc is expected to generate 1.4 times more return on investment than Builders FirstSource. However, AAON is 1.4 times more volatile than Builders FirstSource. It trades about 0.08 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.2 per unit of risk. If you would invest  10,778  in AAON Inc on September 29, 2024 and sell it today you would earn a total of  1,364  from holding AAON Inc or generate 12.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

AAON Inc  vs.  Builders FirstSource

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -20-10010
JavaScript chart by amCharts 3.21.15AAON BLDR
       Timeline  
AAON Inc 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in AAON Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AAON displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecDec105110115120125130135140
Builders FirstSource 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Builders FirstSource has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
JavaScript chart by amCharts 3.21.15NovDecDec150160170180190200

AAON and Builders FirstSource Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.69-7.26-4.82-2.390.02.485.017.5310.06 0.020.040.060.08
JavaScript chart by amCharts 3.21.15AAON BLDR
       Returns  

Pair Trading with AAON and Builders FirstSource

The main advantage of trading using opposite AAON and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAON position performs unexpectedly, Builders FirstSource 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 Builders FirstSource will offset losses from the drop in Builders FirstSource's long position.
The idea behind AAON Inc and Builders FirstSource 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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