Correlation Between Masonite International and Beacon Roofing

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

By analyzing existing cross correlation between Masonite International Corp and Beacon Roofing Supply, you can compare the effects of market volatilities on Masonite International and Beacon Roofing 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 Masonite International with a short position of Beacon Roofing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Masonite International and Beacon Roofing.

Diversification Opportunities for Masonite International and Beacon Roofing

0.78

Correlation Coefficient

Masonite International  Beacon Roofing

Poor diversification

The 3 months correlation between Masonite and Beacon is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Masonite International Corp and Beacon Roofing Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beacon Roofing Supply and Masonite International 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 Masonite International Corp are associated (or correlated) with Beacon Roofing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beacon Roofing Supply has no effect on the direction of Masonite International i.e., Masonite International and Beacon Roofing go up and down completely randomly.

Pair Corralation between Masonite International and Beacon Roofing

If you would invest  8,613  in Beacon Roofing Supply on August 31, 2024 and sell it today you would earn a total of  2,666  from holding Beacon Roofing Supply or generate 30.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

Masonite International Corp  vs.  Beacon Roofing Supply

Masonite International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masonite International Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Masonite International is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Beacon Roofing Supply

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Beacon Roofing displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masonite International and Beacon Roofing

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

The idea behind Masonite International Corp and Beacon Roofing Supply 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.