Correlation Between Beacon Roofing and 00108WAF7

Can any of the company-specific risk be diversified away by investing in both Beacon Roofing and 00108WAF7 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 00108WAF7 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 AEP TEX INC, you can compare the effects of market volatilities on Beacon Roofing and 00108WAF7 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 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beacon Roofing and 00108WAF7.

Diversification Opportunities for Beacon Roofing and 00108WAF7

0.18

Correlation Coefficient

Beacon Roofing  00108WAF7

Average diversification

The 3 months correlation between Beacon and 00108WAF7 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and AEP TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC 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 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and 00108WAF7 go up and down completely randomly.

Pair Corralation between Beacon Roofing and 00108WAF7

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 0.49 times more return on investment than 00108WAF7. However, Beacon Roofing Supply is 2.05 times less risky than 00108WAF7. It trades about 0.33 of its potential returns per unit of risk. AEP TEX INC is currently generating about 0.13 per unit of risk. If you would invest  10,132  in Beacon Roofing Supply on October 24, 2024 and sell it today you would earn a total of  1,473  from holding Beacon Roofing Supply or generate 14.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

Beacon Roofing Supply  vs.  AEP TEX INC

Beacon Roofing Supply

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 12 (%) 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.

AEP TEX INC

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, 00108WAF7 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Beacon Roofing and 00108WAF7

The main advantage of trading using opposite Beacon Roofing and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beacon Roofing position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.

The idea behind Beacon Roofing Supply and AEP TEX INC 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.