Correlation Between Builders FirstSource and Carlisle Companies

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

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

Diversification Opportunities for Builders FirstSource and Carlisle Companies

0.8

Correlation Coefficient

Builders FirstSource  Carlisle Companies

Very poor diversification

The 3 months correlation between Builders and Carlisle is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Carlisle Companies Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlisle Companies 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 Carlisle Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlisle Companies has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Carlisle Companies go up and down completely randomly.

Pair Corralation between Builders FirstSource and Carlisle Companies

Given the investment horizon of 90 days Builders FirstSource is expected to under-perform the Carlisle Companies. In addition to that, Builders FirstSource is 1.22 times more volatile than Carlisle Companies Incorporated. It trades about -0.09 of its total potential returns per unit of risk. Carlisle Companies Incorporated is currently generating about -0.05 per unit of volatility. If you would invest  36,764  in Carlisle Companies Incorporated on December 29, 2024 and sell it today you would lose (2,503) from holding Carlisle Companies Incorporated or give up 6.81% of portfolio value over 90 days.

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

Builders FirstSource  vs.  Carlisle Companies Incorporate

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.

Carlisle Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carlisle Companies Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Carlisle Companies is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Builders FirstSource and Carlisle Companies

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

The idea behind Builders FirstSource and Carlisle Companies Incorporated 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.