Correlation Between Builders FirstSource and Armstrong World

Can any of the company-specific risk be diversified away by investing in both Builders FirstSource and Armstrong World 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 Builders FirstSource and Armstrong World into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Builders FirstSource and Armstrong World Industries, you can compare the effects of market volatilities on Builders FirstSource and Armstrong World 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 Builders FirstSource with a short position of Armstrong World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Builders FirstSource and Armstrong World.

Diversification Opportunities for Builders FirstSource and Armstrong World

-0.35

Correlation Coefficient

Builders FirstSource  Armstrong World

Very good diversification

The 3 months correlation between Builders and Armstrong is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Armstrong World Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong World Indu and Builders FirstSource 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 Builders FirstSource are associated (or correlated) with Armstrong World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong World Indu has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Armstrong World go up and down completely randomly.

Pair Corralation between Builders FirstSource and Armstrong World

Given the investment horizon of 90 days Builders FirstSource is expected to generate 1.7 times more return on investment than Armstrong World. However, Builders FirstSource is 1.7 times more volatile than Armstrong World Industries. It trades about 0.07 of its potential returns per unit of risk. Armstrong World Industries is currently generating about 0.11 per unit of risk. If you would invest  6,651  in Builders FirstSource on September 26, 2024 and sell it today you would earn a total of  8,231  from holding Builders FirstSource or generate 123.76% return on investment over 90 days.

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

Builders FirstSource  vs.  Armstrong World Industries

Builders FirstSource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Builders FirstSource has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Armstrong World Indu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Armstrong World may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Builders FirstSource and Armstrong World

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

The idea behind Builders FirstSource and Armstrong World Industries 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.