Correlation Between Beazer Homes and Auto Trader

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

Diversification Opportunities for Beazer Homes and Auto Trader

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between Beazer and Auto is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group 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 Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Beazer Homes i.e., Beazer Homes and Auto Trader go up and down completely randomly.

Pair Corralation between Beazer Homes and Auto Trader

Assuming the 90 days trading horizon Beazer Homes USA is expected to generate 2.86 times more return on investment than Auto Trader. However, Beazer Homes is 2.86 times more volatile than Auto Trader Group. It trades about 0.1 of its potential returns per unit of risk. Auto Trader Group is currently generating about 0.08 per unit of risk. If you would invest  1,320  in Beazer Homes USA on August 26, 2024 and sell it today you would earn a total of  2,054  from holding Beazer Homes USA or generate 155.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy58.13%
ValuesDaily Returns

Beazer Homes USA  vs.  Auto Trader Group

 Performance 
       Timeline  
Beazer Homes USA 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Beazer Homes may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Auto Trader Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Auto Trader is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Beazer Homes and Auto Trader Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Beazer Homes and Auto Trader

The main advantage of trading using opposite Beazer Homes and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beazer Homes position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.
The idea behind Beazer Homes USA and Auto Trader 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.
Check out your portfolio center.
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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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