Correlation Between Beacon Roofing and Lennox International

Can any of the company-specific risk be diversified away by investing in both Beacon Roofing and Lennox International 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 Lennox International 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 Lennox International, you can compare the effects of market volatilities on Beacon Roofing and Lennox International 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 Lennox International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beacon Roofing and Lennox International.

Diversification Opportunities for Beacon Roofing and Lennox International

0.87

Correlation Coefficient

Beacon Roofing  Lennox International

Very poor diversification

The 3 months correlation between Beacon and Lennox is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International 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 Lennox International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennox International has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Lennox International go up and down completely randomly.

Pair Corralation between Beacon Roofing and Lennox International

Given the investment horizon of 90 days Beacon Roofing Supply is expected to under-perform the Lennox International. But the stock apears to be less risky and, when comparing its historical volatility, Beacon Roofing Supply is 1.07 times less risky than Lennox International. The stock trades about -0.18 of its potential returns per unit of risk. The Lennox International is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  64,529  in Lennox International on October 11, 2024 and sell it today you would lose (1,972) from holding Lennox International or give up 3.06% of portfolio value over 90 days.

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

Beacon Roofing Supply  vs.  Lennox International

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.

Lennox International

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Lennox International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Beacon Roofing and Lennox International

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

The idea behind Beacon Roofing Supply and Lennox International 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 Global Correlations module to find global opportunities by holding instruments from different markets.