Correlation Between Beacon Roofing and Azek

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

Diversification Opportunities for Beacon Roofing and Azek

0.56

Correlation Coefficient

Beacon Roofing  Azek

Very weak diversification

The 3 months correlation between Beacon and Azek is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company 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 Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Azek go up and down completely randomly.

Pair Corralation between Beacon Roofing and Azek

Given the investment horizon of 90 days Beacon Roofing is expected to generate 1.15 times less return on investment than Azek. But when comparing it to its historical volatility, Beacon Roofing Supply is 1.23 times less risky than Azek. It trades about 0.08 of its potential returns per unit of risk. Azek Company is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,444  in Azek Company on February 10, 2025 and sell it today you would earn a total of  2,585  from holding Azek Company or generate 105.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.18%
Values	Daily Returns

Beacon Roofing Supply  vs.  Azek Company

Beacon Roofing Supply

Risk-Adjusted Performance

Modest

Over the last 90 days Beacon Roofing Supply has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Beacon Roofing is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Azek Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Azek is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Beacon Roofing and Azek

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

The idea behind Beacon Roofing Supply and Azek Company 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.