Correlation Between Pool and BlueLinx Holdings

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

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

Diversification Opportunities for Pool and BlueLinx Holdings

0.46

Correlation Coefficient

Pool  BlueLinx Holdings

Very weak diversification

The 3 months correlation between Pool and BlueLinx is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and BlueLinx Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueLinx Holdings and Pool 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 Pool Corporation are associated (or correlated) with BlueLinx Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueLinx Holdings has no effect on the direction of Pool i.e., Pool and BlueLinx Holdings go up and down completely randomly.

Pair Corralation between Pool and BlueLinx Holdings

Given the investment horizon of 90 days Pool is expected to generate 8.8 times less return on investment than BlueLinx Holdings. But when comparing it to its historical volatility, Pool Corporation is 1.41 times less risky than BlueLinx Holdings. It trades about 0.01 of its potential returns per unit of risk. BlueLinx Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,790  in BlueLinx Holdings on September 28, 2024 and sell it today you would earn a total of  1,589  from holding BlueLinx Holdings or generate 18.08% return on investment over 90 days.

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

Pool Corp.  vs.  BlueLinx Holdings

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pool is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BlueLinx Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BlueLinx Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, BlueLinx Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pool and BlueLinx Holdings

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

The idea behind Pool Corporation and BlueLinx Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.