Correlation Between Montana Technologies and Builders FirstSource

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

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

Diversification Opportunities for Montana Technologies and Builders FirstSource

-0.7

Correlation Coefficient

Montana Technologies  Builders FirstSource

Excellent diversification

The 3 months correlation between Montana and Builders is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Montana Technologies and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Montana 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 Montana Technologies 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 Montana Technologies i.e., Montana Technologies and Builders FirstSource go up and down completely randomly.

Pair Corralation between Montana Technologies and Builders FirstSource

Given the investment horizon of 90 days Montana Technologies is expected to under-perform the Builders FirstSource. In addition to that, Montana Technologies is 2.7 times more volatile than Builders FirstSource. It trades about -0.04 of its total potential returns per unit of risk. Builders FirstSource is currently generating about 0.0 per unit of volatility. If you would invest  16,864  in Builders FirstSource on September 20, 2024 and sell it today you would lose (1,661) from holding Builders FirstSource or give up 9.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	79.84%
Values	Daily Returns

Montana Technologies  vs.  Builders FirstSource

Montana Technologies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Montana Technologies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Montana Technologies revealed solid returns over the last few months and may actually be approaching a breakup point.

Builders FirstSource

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Montana Technologies and Builders FirstSource

The main advantage of trading using opposite Montana Technologies and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Montana Technologies 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 Montana Technologies 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.