Correlation Between Beacon Roofing and Trex

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

Diversification Opportunities for Beacon Roofing and Trex

-0.01

Correlation Coefficient

Beacon Roofing  Trex

Good diversification

The 3 months correlation between Beacon and Trex is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex 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 Trex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trex Company has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Trex go up and down completely randomly.

Pair Corralation between Beacon Roofing and Trex

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 0.75 times more return on investment than Trex. However, Beacon Roofing Supply is 1.34 times less risky than Trex. It trades about 0.22 of its potential returns per unit of risk. Trex Company is currently generating about -0.1 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  2,432  from holding Beacon Roofing Supply or generate 24.43% 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.  Trex 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.

Trex Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trex Company 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Beacon Roofing and Trex

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

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