Correlation Between International Biotechnology and Beazer Homes
Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 International Biotechnology and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and Beazer Homes USA, you can compare the effects of market volatilities on International Biotechnology 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 International Biotechnology with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Beazer Homes.
Diversification Opportunities for International Biotechnology and Beazer Homes
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between International and Beazer is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr 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 International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and Beazer Homes go up and down completely randomly.
Pair Corralation between International Biotechnology and Beazer Homes
Assuming the 90 days trading horizon International Biotechnology Trust is expected to generate 0.39 times more return on investment than Beazer Homes. However, International Biotechnology Trust is 2.58 times less risky than Beazer Homes. It trades about 0.07 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.01 per unit of risk. If you would invest 67,800 in International Biotechnology Trust on September 12, 2024 and sell it today you would earn a total of 3,400 from holding International Biotechnology Trust or generate 5.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 64.62% |
| Values | Daily Returns |
International Biotechnology Tr vs. Beazer Homes USA
Performance |
| Timeline |
| International Biotechnology |
| Beazer Homes USA |
International Biotechnology and Beazer Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and Beazer Homes
The main advantage of trading using opposite International Biotechnology and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 International Biotechnology Trust 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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