Correlation Between Beacon Roofing and Latham

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

Diversification Opportunities for Beacon Roofing and Latham

0.24

Correlation Coefficient

Beacon Roofing  Latham

Modest diversification

The 3 months correlation between Beacon and Latham is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Beacon Roofing Supply and Latham Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Latham Group 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 Latham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Latham Group has no effect on the direction of Beacon Roofing i.e., Beacon Roofing and Latham go up and down completely randomly.

Pair Corralation between Beacon Roofing and Latham

Given the investment horizon of 90 days Beacon Roofing is expected to generate 2.08 times less return on investment than Latham. But when comparing it to its historical volatility, Beacon Roofing Supply is 3.13 times less risky than Latham. It trades about 0.07 of its potential returns per unit of risk. Latham Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  252.00  in Latham Group on March 31, 2024 and sell it today you would earn a total of  51.00  from holding Latham Group or generate 20.24% return on investment over 90 days.

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

Beacon Roofing Supply  vs.  Latham Group

Beacon Roofing Supply

Risk-Adjusted Performance

0 of 100

Very Weak

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 latest inconsistent performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Latham Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Latham Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Beacon Roofing and Latham

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

The idea behind Beacon Roofing Supply and Latham Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.