Correlation Between Lennox International and Beacon Roofing
Can any of the company-specific risk be diversified away by investing in both Lennox International and Beacon Roofing 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 Lennox International and Beacon Roofing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennox International and Beacon Roofing Supply, you can compare the effects of market volatilities on Lennox International and Beacon Roofing 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 Lennox International with a short position of Beacon Roofing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennox International and Beacon Roofing.
Diversification Opportunities for Lennox International and Beacon Roofing
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lennox and Beacon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Beacon Roofing Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beacon Roofing Supply and Lennox International 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 Lennox International are associated (or correlated) with Beacon Roofing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beacon Roofing Supply has no effect on the direction of Lennox International i.e., Lennox International and Beacon Roofing go up and down completely randomly.
Pair Corralation between Lennox International and Beacon Roofing
Considering the 90-day investment horizon Lennox International is expected to generate 0.84 times more return on investment than Beacon Roofing. However, Lennox International is 1.19 times less risky than Beacon Roofing. It trades about 0.12 of its potential returns per unit of risk. Beacon Roofing Supply is currently generating about 0.08 per unit of risk. If you would invest 26,323 in Lennox International on August 27, 2024 and sell it today you would earn a total of 39,446 from holding Lennox International or generate 149.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lennox International vs. Beacon Roofing Supply
Performance |
| Timeline |
| Lennox International |
| Beacon Roofing Supply |
Lennox International and Beacon Roofing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lennox International and Beacon Roofing
The main advantage of trading using opposite Lennox International and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennox International position performs unexpectedly, Beacon Roofing 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 Beacon Roofing will offset losses from the drop in Beacon Roofing's long position.| Lennox International vs. Carrier Global Corp | Lennox International vs. Johnson Controls International | Lennox International vs. Masco | Lennox International vs. Carlisle Companies Incorporated |
| Beacon Roofing vs. Global Industrial Co | Beacon Roofing vs. WESCO International | Beacon Roofing vs. MSC Industrial Direct |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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