Correlation Between Azek and Beacon Roofing

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

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

Diversification Opportunities for Azek and Beacon Roofing

0.71

Correlation Coefficient

Azek  Beacon Roofing

Poor diversification

The 3 months correlation between Azek and Beacon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company 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 Azek 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 Azek Company 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 Azek i.e., Azek and Beacon Roofing go up and down completely randomly.

Pair Corralation between Azek and Beacon Roofing

Given the investment horizon of 90 days Azek is expected to generate 1.09 times less return on investment than Beacon Roofing. But when comparing it to its historical volatility, Azek Company is 1.53 times less risky than Beacon Roofing. It trades about 0.39 of its potential returns per unit of risk. Beacon Roofing Supply is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  9,547  in Beacon Roofing Supply on August 31, 2024 and sell it today you would earn a total of  1,732  from holding Beacon Roofing Supply or generate 18.14% return on investment over 90 days.

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

Azek Company  vs.  Beacon Roofing Supply

Azek Company

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek disclosed solid returns over the last few months and may actually be approaching a breakup point.

Beacon Roofing Supply

Risk-Adjusted Performance

15 of 100

Good

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 Azek and Beacon Roofing

The main advantage of trading using opposite Azek and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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 Azek Company 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.