Correlation Between Beazer Homes and Century Communities

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

Diversification Opportunities for Beazer Homes and Century Communities

0.1

Correlation Coefficient

Beazer Homes  Century Communities

Average diversification

The 3 months correlation between Beazer and Century is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Century Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Communities 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 Century Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Communities has no effect on the direction of Beazer Homes i.e., Beazer Homes and Century Communities go up and down completely randomly.

Pair Corralation between Beazer Homes and Century Communities

Considering the 90-day investment horizon Beazer Homes USA is expected to generate 1.07 times more return on investment than Century Communities. However, Beazer Homes is 1.07 times more volatile than Century Communities. It trades about 0.08 of its potential returns per unit of risk. Century Communities is currently generating about -0.05 per unit of risk. If you would invest  3,128  in Beazer Homes USA on August 30, 2024 and sell it today you would earn a total of  365.00  from holding Beazer Homes USA or generate 11.67% return on investment over 90 days.

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

Beazer Homes USA  vs.  Century Communities

Beazer Homes USA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Beazer Homes demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Century Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Communities 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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Beazer Homes and Century Communities

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

The idea behind Beazer Homes USA and Century Communities 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..