Correlation Between Ferguson Plc and Beacon Roofing

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

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

Diversification Opportunities for Ferguson Plc and Beacon Roofing

-0.08

Correlation Coefficient

Ferguson Plc  Beacon Roofing

Good diversification

The 3 months correlation between Ferguson and Beacon is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ferguson Plc 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 Ferguson Plc 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 Ferguson Plc 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 Ferguson Plc i.e., Ferguson Plc and Beacon Roofing go up and down completely randomly.

Pair Corralation between Ferguson Plc and Beacon Roofing

Given the investment horizon of 90 days Ferguson Plc is expected to under-perform the Beacon Roofing. But the stock apears to be less risky and, when comparing its historical volatility, Ferguson Plc is 1.05 times less risky than Beacon Roofing. The stock trades about -0.07 of its potential returns per unit of risk. The Beacon Roofing Supply is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,954  in Beacon Roofing Supply on December 29, 2024 and sell it today you would earn a total of  2,428  from holding Beacon Roofing Supply or generate 24.39% return on investment over 90 days.

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

Ferguson Plc  vs.  Beacon Roofing Supply

Ferguson Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ferguson Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Beacon Roofing Supply

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 17 (%) 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 Ferguson Plc and Beacon Roofing

The main advantage of trading using opposite Ferguson Plc and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferguson Plc 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 Ferguson Plc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.