Correlation Between Gibraltar Industries and Builders FirstSource

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

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

Diversification Opportunities for Gibraltar Industries and Builders FirstSource

0.65

Correlation Coefficient

Gibraltar Industries  Builders FirstSource

Poor diversification

The 3 months correlation between Gibraltar and Builders is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gibraltar Industries and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Gibraltar Industries 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 Gibraltar Industries 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 Gibraltar Industries i.e., Gibraltar Industries and Builders FirstSource go up and down completely randomly.

Pair Corralation between Gibraltar Industries and Builders FirstSource

Given the investment horizon of 90 days Gibraltar Industries is expected to generate 0.43 times more return on investment than Builders FirstSource. However, Gibraltar Industries is 2.33 times less risky than Builders FirstSource. It trades about -0.1 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.18 per unit of risk. If you would invest  7,799  in Gibraltar Industries on March 7, 2024 and sell it today you would lose (571.00) from holding Gibraltar Industries or give up 7.32% of portfolio value over 90 days.

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

Gibraltar Industries  vs.  Builders FirstSource

Gibraltar Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gibraltar Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Gibraltar Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

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 fragile 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 Gibraltar Industries and Builders FirstSource

The main advantage of trading using opposite Gibraltar Industries and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gibraltar Industries 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 Gibraltar Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.