Correlation Between Travis Perkins and Beacon Roofing

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

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

Diversification Opportunities for Travis Perkins and Beacon Roofing

0.0

Correlation Coefficient

Travis Perkins  Beacon Roofing

Pay attention - limited upside

The 3 months correlation between Travis and Beacon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Travis Perkins 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 Travis Perkins 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 Travis Perkins 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 Travis Perkins i.e., Travis Perkins and Beacon Roofing go up and down completely randomly.

Pair Corralation between Travis Perkins and Beacon Roofing

Assuming the 90 days horizon Travis Perkins is expected to generate 3.66 times less return on investment than Beacon Roofing. But when comparing it to its historical volatility, Travis Perkins Plc is 5.04 times less risky than Beacon Roofing. It trades about 0.08 of its potential returns per unit of risk. Beacon Roofing Supply is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,456  in Beacon Roofing Supply on September 13, 2024 and sell it today you would earn a total of  2,433  from holding Beacon Roofing Supply or generate 28.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	80.65%
Values	Daily Returns

Travis Perkins Plc  vs.  Beacon Roofing Supply

Travis Perkins Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Travis Perkins Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Travis Perkins is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Beacon Roofing Supply

Risk-Adjusted Performance

15 of 100

Solid

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 Travis Perkins and Beacon Roofing

The main advantage of trading using opposite Travis Perkins and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travis Perkins 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 Travis Perkins 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.