Correlation Between Azek and Builders FirstSource

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

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

Diversification Opportunities for Azek and Builders FirstSource

0.81

Correlation Coefficient

Azek  Builders FirstSource

Very poor diversification

The 3 months correlation between Azek and Builders is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Azek 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 Azek Company 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 Azek i.e., Azek and Builders FirstSource go up and down completely randomly.

Pair Corralation between Azek and Builders FirstSource

Given the investment horizon of 90 days Azek Company is expected to generate 1.32 times more return on investment than Builders FirstSource. However, Azek is 1.32 times more volatile than Builders FirstSource. It trades about 0.03 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.09 per unit of risk. If you would invest  4,797  in Azek Company on December 28, 2024 and sell it today you would earn a total of  168.00  from holding Azek Company or generate 3.5% return on investment over 90 days.

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

Azek Company  vs.  Builders FirstSource

Azek Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Builders FirstSource

Risk-Adjusted Performance

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 April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Azek and Builders FirstSource

The main advantage of trading using opposite Azek and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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 Azek Company 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.