Correlation Between Masco and Masonite International
Can any of the company-specific risk be diversified away by investing in both Masco and Masonite International 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 Masco and Masonite International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Masco and Masonite International Corp, you can compare the effects of market volatilities on Masco and Masonite International 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 Masco with a short position of Masonite International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Masco and Masonite International.
Diversification Opportunities for Masco and Masonite International
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Masco and Masonite is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Masonite International Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masonite International and Masco 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 Masco are associated (or correlated) with Masonite International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masonite International has no effect on the direction of Masco i.e., Masco and Masonite International go up and down completely randomly.
Pair Corralation between Masco and Masonite International
Considering the 90-day investment horizon Masco is expected to generate 1.17 times less return on investment than Masonite International. But when comparing it to its historical volatility, Masco is 1.94 times less risky than Masonite International. It trades about 0.1 of its potential returns per unit of risk. Masonite International Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 9,135 in Masonite International Corp on January 18, 2024 and sell it today you would earn a total of 3,933 from holding Masonite International Corp or generate 43.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Masco vs. Masonite International Corp
Performance |
| Timeline |
| Masco |
| Masonite International |
Masco and Masonite International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Masco and Masonite International
The main advantage of trading using opposite Masco and Masonite International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Masco position performs unexpectedly, Masonite International 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 Masonite International will offset losses from the drop in Masonite International's long position.The idea behind Masco and Masonite International Corp 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.| Masonite International vs. Carpenter Technology | Masonite International vs. Myers Industries | Masonite International vs. Griffon |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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