Correlation Between Builders FirstSource and Inari MedicalInc

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

By analyzing existing cross correlation between Builders FirstSource and Inari MedicalInc, you can compare the effects of market volatilities on Builders FirstSource and Inari MedicalInc 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 Inari MedicalInc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Builders FirstSource and Inari MedicalInc.

Diversification Opportunities for Builders FirstSource and Inari MedicalInc

-0.64

Correlation Coefficient

Builders FirstSource  Inari MedicalInc

Excellent diversification

The 3 months correlation between Builders and Inari is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Builders FirstSource and Inari MedicalInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inari MedicalInc 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 Inari MedicalInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inari MedicalInc has no effect on the direction of Builders FirstSource i.e., Builders FirstSource and Inari MedicalInc go up and down completely randomly.

Pair Corralation between Builders FirstSource and Inari MedicalInc

Given the investment horizon of 90 days Builders FirstSource is expected to generate 0.62 times more return on investment than Inari MedicalInc. However, Builders FirstSource is 1.62 times less risky than Inari MedicalInc. It trades about -0.3 of its potential returns per unit of risk. Inari MedicalInc is currently generating about -0.25 per unit of risk. If you would invest  20,661  in Builders FirstSource on January 20, 2024 and sell it today you would lose (2,433) from holding Builders FirstSource or give up 11.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Builders FirstSource  vs.  Inari MedicalInc

Builders FirstSource

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Builders FirstSource are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Builders FirstSource is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Inari MedicalInc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inari MedicalInc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Builders FirstSource and Inari MedicalInc

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

The idea behind Builders FirstSource and Inari MedicalInc 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.