Correlation Between Builders FirstSource and Johnson Controls

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

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

Diversification Opportunities for Builders FirstSource and Johnson Controls

-0.41

Correlation Coefficient

Builders FirstSource  Johnson Controls

Very good diversification

The 3 months correlation between Builders and Johnson is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int 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 Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Johnson Controls go up and down completely randomly.

Pair Corralation between Builders FirstSource and Johnson Controls

Given the investment horizon of 90 days Builders FirstSource is expected to under-perform the Johnson Controls. In addition to that, Builders FirstSource is 1.33 times more volatile than Johnson Controls International. It trades about -0.57 of its total potential returns per unit of risk. Johnson Controls International is currently generating about -0.07 per unit of volatility. If you would invest  8,296  in Johnson Controls International on September 25, 2024 and sell it today you would lose (197.00) from holding Johnson Controls International or give up 2.37% of portfolio value over 90 days.

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

Builders FirstSource  vs.  Johnson Controls International

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.

Johnson Controls Int

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental indicators, Johnson Controls may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Builders FirstSource and Johnson Controls

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

The idea behind Builders FirstSource and Johnson Controls International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.