Correlation Between Advanced Energy and Builders FirstSource

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

By analyzing existing cross correlation between Advanced Energy Industries and Builders FirstSource, you can compare the effects of market volatilities on Advanced Energy and Builders FirstSource 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 Advanced Energy with a short position of Builders FirstSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Energy and Builders FirstSource.

Diversification Opportunities for Advanced Energy and Builders FirstSource

0.88

Correlation Coefficient

Advanced Energy  Builders FirstSource

Very poor diversification

The 3 months correlation between Advanced and Builders is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Advanced Energy 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 Advanced Energy Industries are associated (or correlated) with Builders FirstSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Builders FirstSource has no effect on the direction of Advanced Energy i.e., Advanced Energy and Builders FirstSource go up and down completely randomly.

Pair Corralation between Advanced Energy and Builders FirstSource

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 0.66 times more return on investment than Builders FirstSource. However, Advanced Energy Industries is 1.52 times less risky than Builders FirstSource. It trades about 0.21 of its potential returns per unit of risk. Builders FirstSource is currently generating about 0.09 per unit of risk. If you would invest  11,687  in Advanced Energy Industries on May 19, 2025 and sell it today you would earn a total of  3,453  from holding Advanced Energy Industries or generate 29.55% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Builders FirstSource

Advanced Energy Indu

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Builders FirstSource

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Builders FirstSource are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Builders FirstSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Energy and Builders FirstSource

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

The idea behind Advanced Energy Industries and Builders FirstSource 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.