Correlation Between Beacon Roofing and COVANTA

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

Diversification Opportunities for Beacon Roofing and COVANTA

-0.26

Correlation Coefficient

Beacon Roofing  COVANTA

Very good diversification

The 3 months correlation between Beacon and COVANTA is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and COVANTA HLDG P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVANTA HLDG 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 COVANTA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVANTA HLDG P has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and COVANTA go up and down completely randomly.

Pair Corralation between Beacon Roofing and COVANTA

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.3 times more return on investment than COVANTA. However, Beacon Roofing is 1.3 times more volatile than COVANTA HLDG P. It trades about 0.17 of its potential returns per unit of risk. COVANTA HLDG P is currently generating about -0.13 per unit of risk. If you would invest  9,336  in Beacon Roofing Supply on October 25, 2024 and sell it today you would earn a total of  2,318  from holding Beacon Roofing Supply or generate 24.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

Beacon Roofing Supply  vs.  COVANTA HLDG P

Beacon Roofing Supply

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 13 (%) 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.

COVANTA HLDG P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COVANTA HLDG P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for COVANTA HLDG P investors.

Pair Trading with Beacon Roofing and COVANTA

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

The idea behind Beacon Roofing Supply and COVANTA HLDG 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 Stocks Directory module to find actively traded stocks across global markets.