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 The 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
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Beazer and Home is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and The 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 3.72 times more return on investment than Home Depot. However, Beazer Homes is 3.72 times more volatile than The Home Depot. It trades about 0.15 of its potential returns per unit of risk. The Home Depot is currently generating about 0.41 per unit of risk. If you would invest 2,840 in Beazer Homes USA on September 1, 2024 and sell it today you would earn a total of 420.00 from holding Beazer Homes USA or generate 14.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Beazer Homes USA vs. The Home Depot
Performance |
| Timeline |
| Beazer Homes USA |
| Home Depot |
Beazer Homes and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
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.| Beazer Homes vs. Transport International Holdings | Beazer Homes vs. SPORTING | Beazer Homes vs. SCIENCE IN SPORT | Beazer Homes vs. Salesforce |
| Home Depot vs. FEMALE HEALTH | Home Depot vs. WILLIS LEASE FIN | Home Depot vs. SBM OFFSHORE | Home Depot vs. CVS Health |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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