Correlation Between Beacon Roofing and Lennox International

Can any of the company-specific risk be diversified away by investing in both Beacon Roofing and Lennox International 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 Lennox International 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 Lennox International, you can compare the effects of market volatilities on Beacon Roofing and Lennox International 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 Lennox International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beacon Roofing and Lennox International.

Diversification Opportunities for Beacon Roofing and Lennox International

0.8

Correlation Coefficient

Beacon Roofing  Lennox International

Very poor diversification

The 3 months correlation between Beacon and Lennox is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International 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 Lennox International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennox International has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Lennox International go up and down completely randomly.

Pair Corralation between Beacon Roofing and Lennox International

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.53 times more return on investment than Lennox International. However, Beacon Roofing is 1.53 times more volatile than Lennox International. It trades about 0.19 of its potential returns per unit of risk. Lennox International is currently generating about 0.19 per unit of risk. If you would invest  8,613  in Beacon Roofing Supply on August 31, 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	Strong
Accuracy	100.0%
Values	Daily Returns

Beacon Roofing Supply  vs.  Lennox International

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.

Lennox International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Lennox International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beacon Roofing and Lennox International

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

The idea behind Beacon Roofing Supply and Lennox International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.