Correlation Between Builders FirstSource and Masco

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

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

Diversification Opportunities for Builders FirstSource and Masco

0.87

Correlation Coefficient

Builders FirstSource  Masco

Very poor diversification

The 3 months correlation between Builders and Masco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco 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 Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Masco go up and down completely randomly.

Pair Corralation between Builders FirstSource and Masco

Given the investment horizon of 90 days Builders FirstSource is expected to under-perform the Masco. In addition to that, Builders FirstSource is 1.57 times more volatile than Masco. It trades about -0.09 of its total potential returns per unit of risk. Masco is currently generating about -0.05 per unit of volatility. If you would invest  7,223  in Masco on December 28, 2024 and sell it today you would lose (356.00) from holding Masco or give up 4.93% 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.  Masco

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.

Masco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Masco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Masco is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Builders FirstSource and Masco

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

The idea behind Builders FirstSource and Masco 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.