Correlation Between Lennox International and Builders FirstSource

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

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

Diversification Opportunities for Lennox International and Builders FirstSource

-0.44

Correlation Coefficient

Lennox International  Builders FirstSource

Very good diversification

The 3 months correlation between Lennox and Builders is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Lennox International 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 Lennox International are associated (or correlated) with Builders FirstSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Builders FirstSource has no effect on the direction of Lennox International i.e., Lennox International and Builders FirstSource go up and down completely randomly.

Pair Corralation between Lennox International and Builders FirstSource

Considering the 90-day investment horizon Lennox International is expected to generate 0.49 times more return on investment than Builders FirstSource. However, Lennox International is 2.06 times less risky than Builders FirstSource. It trades about 0.08 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.14 per unit of risk. If you would invest  46,955  in Lennox International on March 13, 2024 and sell it today you would earn a total of  3,580  from holding Lennox International or generate 7.62% return on investment over 90 days.

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

Lennox International  vs.  Builders FirstSource

Lennox International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Lennox International may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Builders FirstSource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Builders FirstSource has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Lennox International and Builders FirstSource

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

The idea behind Lennox International and Builders FirstSource 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.