Correlation Between Quanex Building and Masonite International

Can any of the company-specific risk be diversified away by investing in both Quanex Building 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 Quanex Building and Masonite International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Quanex Building Products and Masonite International Corp, you can compare the effects of market volatilities on Quanex Building 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 Quanex Building with a short position of Masonite International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quanex Building and Masonite International.

Diversification Opportunities for Quanex Building and Masonite International

0.78

Correlation Coefficient

Quanex Building  Masonite International

Poor diversification

The 3 months correlation between Quanex and Masonite is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building Products and Masonite International Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masonite International and Quanex Building 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 Quanex Building Products 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 Quanex Building i.e., Quanex Building and Masonite International go up and down completely randomly.

Pair Corralation between Quanex Building and Masonite International

Allowing for the 90-day total investment horizon Quanex Building Products is expected to under-perform the Masonite International. In addition to that, Quanex Building is 9.02 times more volatile than Masonite International Corp. It trades about -0.23 of its total potential returns per unit of risk. Masonite International Corp is currently generating about -0.02 per unit of volatility. If you would invest  13,150  in Masonite International Corp on January 20, 2024 and sell it today you would lose (11.00) from holding Masonite International Corp or give up 0.08% of portfolio value over 90 days.

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

Quanex Building Products  vs.  Masonite International Corp

Quanex Building Products

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Quanex Building Products are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Quanex Building may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Masonite International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Masonite International Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Masonite International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Quanex Building and Masonite International

The main advantage of trading using opposite Quanex Building and Masonite International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quanex Building 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 Quanex Building Products 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.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.