Correlation Between Arlo Technologies and Beacon Roofing

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

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

Diversification Opportunities for Arlo Technologies and Beacon Roofing

0.65

Correlation Coefficient

Arlo Technologies  Beacon Roofing

Poor diversification

The 3 months correlation between Arlo and Beacon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Arlo Technologies 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 Arlo 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 Arlo 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 Arlo Technologies i.e., Arlo Technologies and Beacon Roofing go up and down completely randomly.

Pair Corralation between Arlo Technologies and Beacon Roofing

Given the investment horizon of 90 days Arlo Technologies is expected to under-perform the Beacon Roofing. In addition to that, Arlo Technologies is 1.93 times more volatile than Beacon Roofing Supply. It trades about -0.18 of its total potential returns per unit of risk. Beacon Roofing Supply is currently generating about -0.18 per unit of volatility. If you would invest  10,885  in Beacon Roofing Supply on October 11, 2024 and sell it today you would lose (517.00) from holding Beacon Roofing Supply or give up 4.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Arlo Technologies  vs.  Beacon Roofing Supply

Arlo Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arlo Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Arlo Technologies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Beacon Roofing Supply

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 8 (%) 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 Arlo Technologies and Beacon Roofing

The main advantage of trading using opposite Arlo Technologies and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arlo Technologies 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 Arlo 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.