Correlation Between Beacon Roofing and Interface

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

Diversification Opportunities for Beacon Roofing and Interface

-0.23

Correlation Coefficient

Beacon Roofing  Interface

Very good diversification

The 3 months correlation between Beacon and Interface is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Interface in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interface 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 Interface. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interface has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Interface go up and down completely randomly.

Pair Corralation between Beacon Roofing and Interface

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 0.66 times more return on investment than Interface. However, Beacon Roofing Supply is 1.51 times less risky than Interface. It trades about 0.04 of its potential returns per unit of risk. Interface is currently generating about -0.19 per unit of risk. If you would invest  11,302  in Beacon Roofing Supply on November 29, 2024 and sell it today you would earn a total of  298.00  from holding Beacon Roofing Supply or generate 2.64% return on investment over 90 days.

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

Beacon Roofing Supply  vs.  Interface

Beacon Roofing Supply

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Beacon Roofing is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Interface

Risk-Adjusted Performance

Very Weak

Over the last 90 days Interface has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Beacon Roofing and Interface

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

The idea behind Beacon Roofing Supply and Interface 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.