Correlation Between Limbach Holdings and Builders FirstSource

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

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

Diversification Opportunities for Limbach Holdings and Builders FirstSource

-0.38

Correlation Coefficient

Limbach Holdings  Builders FirstSource

Very good diversification

The 3 months correlation between Limbach and Builders is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Limbach Holdings and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Limbach Holdings 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 Limbach Holdings are associated (or correlated) with Builders FirstSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Builders FirstSource has no effect on the direction of Limbach Holdings i.e., Limbach Holdings and Builders FirstSource go up and down completely randomly.

Pair Corralation between Limbach Holdings and Builders FirstSource

Considering the 90-day investment horizon Limbach Holdings is expected to generate 1.68 times more return on investment than Builders FirstSource. However, Limbach Holdings is 1.68 times more volatile than Builders FirstSource. It trades about 0.09 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.17 per unit of risk. If you would invest  7,715  in Limbach Holdings on September 25, 2024 and sell it today you would earn a total of  1,066  from holding Limbach Holdings or generate 13.82% return on investment over 90 days.

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

Limbach Holdings  vs.  Builders FirstSource

Limbach Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Limbach Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, Limbach Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Limbach Holdings and Builders FirstSource

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

The idea behind Limbach Holdings and Builders FirstSource 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.