Correlation Between Builders FirstSource and Trex
Can any of the company-specific risk be diversified away by investing in both Builders FirstSource and Trex 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 Trex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Builders FirstSource and Trex Company, you can compare the effects of market volatilities on Builders FirstSource and Trex 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 Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Builders FirstSource and Trex.
Diversification Opportunities for Builders FirstSource and Trex
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Builders and Trex is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company 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 Trex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trex Company has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Trex go up and down completely randomly.
Pair Corralation between Builders FirstSource and Trex
Given the investment horizon of 90 days Builders FirstSource is expected to generate 0.98 times more return on investment than Trex. However, Builders FirstSource is 1.02 times less risky than Trex. It trades about 0.3 of its potential returns per unit of risk. Trex Company is currently generating about 0.1 per unit of risk. If you would invest 14,818 in Builders FirstSource on October 26, 2024 and sell it today you would earn a total of 1,963 from holding Builders FirstSource or generate 13.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Builders FirstSource vs. Trex Company
Performance |
| Timeline |
| Builders FirstSource |
| Trex Company |
Builders FirstSource and Trex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Builders FirstSource and Trex
The main advantage of trading using opposite Builders FirstSource and Trex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Builders FirstSource position performs unexpectedly, Trex 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 Trex will offset losses from the drop in Trex's long position.| Builders FirstSource vs. Apogee Enterprises | Builders FirstSource vs. Azek Company | Builders FirstSource vs. Lennox International | Builders FirstSource vs. Gibraltar Industries |
| Trex vs. Quanex Building Products | Trex vs. Armstrong World Industries | Trex vs. Gibraltar Industries | Trex vs. Apogee Enterprises |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |