Correlation Between Builders FirstSource and Quanex Building

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

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

Diversification Opportunities for Builders FirstSource and Quanex Building

0.59

Correlation Coefficient

Builders FirstSource  Quanex Building

Very weak diversification

The 3 months correlation between Builders and Quanex is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource 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 Builders FirstSource 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 Builders FirstSource 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 Builders FirstSource i.e., Builders FirstSource and Quanex Building go up and down completely randomly.

Pair Corralation between Builders FirstSource and Quanex Building

Given the investment horizon of 90 days Builders FirstSource is expected to generate 1.58 times less return on investment than Quanex Building. But when comparing it to its historical volatility, Builders FirstSource is 1.08 times less risky than Quanex Building. It trades about 0.07 of its potential returns per unit of risk. Quanex Building Products is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Quanex Building Products on April 24, 2025 and sell it today you would earn a total of  332.00  from holding Quanex Building Products or generate 20.08% return on investment over 90 days.

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

Builders FirstSource  vs.  Quanex Building Products

Builders FirstSource

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Builders FirstSource are ranked lower than 5 (%) 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.

Quanex Building Products

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quanex Building Products are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Quanex Building showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Builders FirstSource and Quanex Building

The main advantage of trading using opposite Builders FirstSource and Quanex Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Builders FirstSource 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 Builders FirstSource 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.