Correlation Between Beacon Roofing and Azek

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

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

Diversification Opportunities for Beacon Roofing and Azek

-0.03

Correlation Coefficient

Beacon Roofing  Azek

Good diversification

The 3 months correlation between Beacon and Azek is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company and Beacon Roofing 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 Beacon Roofing Supply are associated (or correlated) with Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Azek go up and down completely randomly.

Pair Corralation between Beacon Roofing and Azek

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 0.55 times more return on investment than Azek. However, Beacon Roofing Supply is 1.82 times less risky than Azek. It trades about 0.22 of its potential returns per unit of risk. Azek Company is currently generating about 0.03 per unit of risk. If you would invest  9,954  in Beacon Roofing Supply on December 28, 2024 and sell it today you would earn a total of  2,427  from holding Beacon Roofing Supply or generate 24.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Beacon Roofing Supply  vs.  Azek Company

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.

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.

Pair Trading with Beacon Roofing and Azek

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

The idea behind Beacon Roofing Supply and Azek Company 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.