Correlation Between Beacon Roofing and Quanex Building

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

Diversification Opportunities for Beacon Roofing and Quanex Building

0.76

Correlation Coefficient

Beacon Roofing  Quanex Building

Poor diversification

The 3 months correlation between Beacon and Quanex is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Quanex Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanex Building Products 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 Quanex Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanex Building Products has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Quanex Building go up and down completely randomly.

Pair Corralation between Beacon Roofing and Quanex Building

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.26 times more return on investment than Quanex Building. However, Beacon Roofing is 1.26 times more volatile than Quanex Building Products. It trades about 0.38 of its potential returns per unit of risk. Quanex Building Products is currently generating about 0.08 per unit of risk. If you would invest  8,025  in Beacon Roofing Supply on July 10, 2024 and sell it today you would earn a total of  1,517  from holding Beacon Roofing Supply or generate 18.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Beacon Roofing Supply  vs.  Quanex Building Products

Beacon Roofing Supply

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Beacon Roofing may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Quanex Building Products

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quanex Building Products are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Quanex Building may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Beacon Roofing and Quanex Building

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

The idea behind Beacon Roofing Supply and Quanex Building Products 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..