Correlation Between Beacon Roofing and BLACK

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

Diversification Opportunities for Beacon Roofing and BLACK

-0.22

Correlation Coefficient

Beacon Roofing  BLACK

Very good diversification

The 3 months correlation between Beacon and BLACK is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and BLACK HILLS P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLACK HILLS P 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 BLACK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BLACK HILLS P has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and BLACK go up and down completely randomly.

Pair Corralation between Beacon Roofing and BLACK

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.53 times more return on investment than BLACK. However, Beacon Roofing is 1.53 times more volatile than BLACK HILLS P. It trades about 0.2 of its potential returns per unit of risk. BLACK HILLS P is currently generating about 0.07 per unit of risk. If you would invest  10,132  in Beacon Roofing Supply on December 22, 2024 and sell it today you would earn a total of  2,245  from holding Beacon Roofing Supply or generate 22.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.69%
Values	Daily Returns

Beacon Roofing Supply  vs.  BLACK HILLS P

Beacon Roofing Supply

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 15 (%) 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.

BLACK HILLS P

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BLACK HILLS P are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BLACK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beacon Roofing and BLACK

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

The idea behind Beacon Roofing Supply and BLACK HILLS P 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 Transaction History module to view history of all your transactions and understand their impact on performance.