Correlation Between Applied Industrial and Beacon Roofing

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

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

Diversification Opportunities for Applied Industrial and Beacon Roofing

0.08

Correlation Coefficient

Applied Industrial  Beacon Roofing

Significant diversification

The 3 months correlation between Applied and Beacon is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and Beacon Roofing Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beacon Roofing Supply and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with Beacon Roofing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beacon Roofing Supply has no effect on the direction of Applied Industrial i.e., Applied Industrial and Beacon Roofing go up and down completely randomly.

Pair Corralation between Applied Industrial and Beacon Roofing

Considering the 90-day investment horizon Applied Industrial Technologies is expected to under-perform the Beacon Roofing. In addition to that, Applied Industrial is 1.12 times more volatile than Beacon Roofing Supply. It trades about -0.01 of its total potential returns per unit of risk. Beacon Roofing Supply is currently generating about 0.22 per unit of volatility. If you would invest  9,954  in Beacon Roofing Supply on December 29, 2024 and sell it today you would earn a total of  2,432  from holding Beacon Roofing Supply or generate 24.43% return on investment over 90 days.

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

Applied Industrial Technologie  vs.  Beacon Roofing Supply

Applied Industrial

Risk-Adjusted Performance

Very Weak

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

Beacon Roofing Supply

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Beacon Roofing displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Industrial and Beacon Roofing

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

The idea behind Applied Industrial Technologies and Beacon Roofing Supply 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.