Correlation Between Home Depot and Beazer Homes

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

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

Diversification Opportunities for Home Depot and Beazer Homes

0.34

Correlation Coefficient

Home Depot  Beazer Homes

Weak diversification

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

Pair Corralation between Home Depot and Beazer Homes

Assuming the 90 days trading horizon Home Depot is expected to generate 12.31 times less return on investment than Beazer Homes. But when comparing it to its historical volatility, Home Depot is 13.83 times less risky than Beazer Homes. It trades about 0.22 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.2 of returns per unit of risk over similar time horizon. 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

Home Depot  vs.  Beazer Homes USA

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.

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.

Pair Trading with Home Depot and Beazer Homes

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

The idea behind Home Depot and Beazer Homes USA 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.