Correlation Between Beacon Roofing and Carlisle Companies

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

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

Diversification Opportunities for Beacon Roofing and Carlisle Companies

0.53

Correlation Coefficient

Beacon Roofing  Carlisle Companies

Very weak diversification

The 3 months correlation between Beacon and Carlisle is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Carlisle Companies Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlisle Companies and Beacon Roofing 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 Beacon Roofing Supply are associated (or correlated) with Carlisle Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlisle Companies has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Carlisle Companies go up and down completely randomly.

Pair Corralation between Beacon Roofing and Carlisle Companies

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.28 times more return on investment than Carlisle Companies. However, Beacon Roofing is 1.28 times more volatile than Carlisle Companies Incorporated. It trades about 0.19 of its potential returns per unit of risk. Carlisle Companies Incorporated is currently generating about 0.12 per unit of risk. If you would invest  8,613  in Beacon Roofing Supply on September 3, 2024 and sell it today you would earn a total of  2,689  from holding Beacon Roofing Supply or generate 31.22% return on investment over 90 days.

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

Beacon Roofing Supply  vs.  Carlisle Companies Incorporate

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.

Carlisle Companies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carlisle Companies Incorporated are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Carlisle Companies disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beacon Roofing and Carlisle Companies

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

The idea behind Beacon Roofing Supply and Carlisle Companies Incorporated 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..