Correlation Between Beazer Homes and Home Depot

Can any of the company-specific risk be diversified away by investing in both Beazer Homes and Home Depot 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 Beazer Homes and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Beazer Homes USA and Home Depot, you can compare the effects of market volatilities on Beazer Homes and Home Depot 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 Beazer Homes with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beazer Homes and Home Depot.

Diversification Opportunities for Beazer Homes and Home Depot

0.34

Correlation Coefficient

Beazer Homes  Home Depot

Weak diversification

The 3 months correlation between Beazer and Home is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Beazer Homes 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 Beazer Homes USA are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Beazer Homes i.e., Beazer Homes and Home Depot go up and down completely randomly.

Pair Corralation between Beazer Homes and Home Depot

Assuming the 90 days trading horizon Beazer Homes USA is expected to generate 13.83 times more return on investment than Home Depot. However, Beazer Homes is 13.83 times more volatile than Home Depot. It trades about 0.2 of its potential returns per unit of risk. Home Depot is currently generating about 0.22 per unit of risk. If you would invest  3,150  in Beazer Homes USA on September 3, 2024 and sell it today you would earn a total of  355.00  from holding Beazer Homes USA or generate 11.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.0%
Values	Daily Returns

Beazer Homes USA  vs.  Home Depot

Beazer Homes USA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Beazer Homes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Beazer Homes and Home Depot

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

The idea behind Beazer Homes USA and Home Depot 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..