Correlation Between Beacon Roofing and Health Care

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

Diversification Opportunities for Beacon Roofing and Health Care

-0.49

Correlation Coefficient

Beacon Roofing  Health Care

Very good diversification

The 3 months correlation between Beacon and Health is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Health Care go up and down completely randomly.

Pair Corralation between Beacon Roofing and Health Care

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 2.9 times more return on investment than Health Care. However, Beacon Roofing is 2.9 times more volatile than Health Care Select. It trades about 0.08 of its potential returns per unit of risk. Health Care Select is currently generating about 0.01 per unit of risk. If you would invest  5,342  in Beacon Roofing Supply on October 11, 2024 and sell it today you would earn a total of  5,026  from holding Beacon Roofing Supply or generate 94.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Beacon Roofing Supply  vs.  Health Care Select

Pair Trading with Beacon Roofing and Health Care

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

The idea behind Beacon Roofing Supply and Health Care Select 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.