Correlation Between Beacon Roofing and Armstrong World

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

Diversification Opportunities for Beacon Roofing and Armstrong World

-0.29

Correlation Coefficient

Beacon Roofing  Armstrong World

Very good diversification

The 3 months correlation between Beacon and Armstrong is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Armstrong World Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong World Indu 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 Armstrong World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong World Indu has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Armstrong World go up and down completely randomly.

Pair Corralation between Beacon Roofing and Armstrong World

Given the investment horizon of 90 days Beacon Roofing Supply is expected to generate 1.5 times more return on investment than Armstrong World. However, Beacon Roofing is 1.5 times more volatile than Armstrong World Industries. It trades about 0.11 of its potential returns per unit of risk. Armstrong World Industries is currently generating about -0.1 per unit of risk. If you would invest  8,674  in Beacon Roofing Supply on March 7, 2024 and sell it today you would earn a total of  889.00  from holding Beacon Roofing Supply or generate 10.25% return on investment over 90 days.

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

Beacon Roofing Supply  vs.  Armstrong World Industries

Beacon Roofing Supply

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Beacon Roofing may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Armstrong World Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armstrong World Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Beacon Roofing and Armstrong World

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

The idea behind Beacon Roofing Supply and Armstrong World Industries 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.

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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.