Correlation Between Trane Technologies and Builders FirstSource

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

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

Diversification Opportunities for Trane Technologies and Builders FirstSource

-0.69

Correlation Coefficient

Trane Technologies  Builders FirstSource

Excellent diversification

The 3 months correlation between Trane and Builders is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Builders FirstSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Builders FirstSource and Trane Technologies 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 Trane Technologies plc 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 Trane Technologies i.e., Trane Technologies and Builders FirstSource go up and down completely randomly.

Pair Corralation between Trane Technologies and Builders FirstSource

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to generate 0.55 times more return on investment than Builders FirstSource. However, Trane Technologies plc is 1.82 times less risky than Builders FirstSource. It trades about 0.07 of its potential returns per unit of risk. Builders FirstSource is currently generating about -0.27 per unit of risk. If you would invest  32,578  in Trane Technologies plc on March 14, 2024 and sell it today you would earn a total of  635.00  from holding Trane Technologies plc or generate 1.95% return on investment over 90 days.

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

Trane Technologies plc  vs.  Builders FirstSource

Trane Technologies plc

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Trane Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Trane Technologies and Builders FirstSource

The main advantage of trading using opposite Trane Technologies and Builders FirstSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies plc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.