Correlation Between GM and Beazer Homes
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Beazer Homes USA, you can compare the effects of market volatilities on GM 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 GM with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Beazer Homes.
Diversification Opportunities for GM and Beazer Homes
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and Beazer is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Beazer Homes go up and down completely randomly.
Pair Corralation between GM and Beazer Homes
Allowing for the 90-day total investment horizon GM is expected to generate 2.64 times less return on investment than Beazer Homes. But when comparing it to its historical volatility, General Motors is 1.37 times less risky than Beazer Homes. It trades about 0.13 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,034 in Beazer Homes USA on August 30, 2024 and sell it today you would earn a total of 482.00 from holding Beazer Homes USA or generate 15.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 72.73% |
| Values | Daily Returns |
General Motors vs. Beazer Homes USA
Performance |
| Timeline |
| General Motors |
| Beazer Homes USA |
GM and Beazer Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Beazer Homes
The main advantage of trading using opposite GM and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Beazer Homes vs. GreenX Metals | Beazer Homes vs. Jacquet Metal Service | Beazer Homes vs. Futura Medical | Beazer Homes vs. Kaufman Et Broad |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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