Correlation Between Builders FirstSource and Azek

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

By analyzing existing cross correlation between Builders FirstSource and Azek Company, you can compare the effects of market volatilities on Builders FirstSource and Azek 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 Azek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Builders FirstSource and Azek.

Diversification Opportunities for Builders FirstSource and Azek

0.81

Correlation Coefficient

Builders FirstSource  Azek

Very poor diversification

The 3 months correlation between Builders and Azek is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company 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 Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Azek go up and down completely randomly.

Pair Corralation between Builders FirstSource and Azek

Given the investment horizon of 90 days Builders FirstSource is expected to under-perform the Azek. But the stock apears to be less risky and, when comparing its historical volatility, Builders FirstSource is 1.32 times less risky than Azek. The stock trades about -0.09 of its potential returns per unit of risk. The Azek Company is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,797  in Azek Company on December 28, 2024 and sell it today you would earn a total of  168.00  from holding Azek Company or generate 3.5% return on investment over 90 days.

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

Builders FirstSource  vs.  Azek Company

Builders FirstSource

Risk-Adjusted Performance

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 April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Azek Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Builders FirstSource and Azek

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

The idea behind Builders FirstSource and Azek 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.