Correlation Between Masco and Builders FirstSource

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

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

Diversification Opportunities for Masco and Builders FirstSource

0.87

Correlation Coefficient

Masco  Builders FirstSource

Very poor diversification

The 3 months correlation between Masco and Builders is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Masco 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 Masco 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 Masco i.e., Masco and Builders FirstSource go up and down completely randomly.

Pair Corralation between Masco and Builders FirstSource

Considering the 90-day investment horizon Masco is expected to generate 0.64 times more return on investment than Builders FirstSource. However, Masco is 1.57 times less risky than Builders FirstSource. It trades about -0.05 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.09 per unit of risk. 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

Masco  vs.  Builders FirstSource

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.

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.

Pair Trading with Masco and Builders FirstSource

The main advantage of trading using opposite Masco and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Masco 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 Masco 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.