Correlation Between Lennar and Beazer Homes
Can any of the company-specific risk be diversified away by investing in both Lennar 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 Lennar and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lennar and Beazer Homes USA, you can compare the effects of market volatilities on Lennar 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 Lennar with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lennar and Beazer Homes.
Diversification Opportunities for Lennar and Beazer Homes
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Lennar and Beazer is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Lennar 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 Lennar 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 Lennar 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 Lennar i.e., Lennar and Beazer Homes go up and down completely randomly.
Pair Corralation between Lennar and Beazer Homes
Assuming the 90 days horizon Lennar is expected to generate 1.43 times less return on investment than Beazer Homes. But when comparing it to its historical volatility, Lennar is 1.74 times less risky than Beazer Homes. It trades about 0.09 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,280 in Beazer Homes USA on August 24, 2024 and sell it today you would earn a total of 1,760 from holding Beazer Homes USA or generate 137.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lennar vs. Beazer Homes USA
Performance |
| Timeline |
| Lennar |
| Beazer Homes USA |
Lennar and Beazer Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lennar and Beazer Homes
The main advantage of trading using opposite Lennar and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar 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.| Lennar vs. HOCHSCHILD MINING | Lennar vs. Wyndham Hotels Resorts | Lennar vs. Scientific Games | Lennar vs. PENN NATL GAMING |
| Beazer Homes vs. Lennar | Beazer Homes vs. NVR Inc | Beazer Homes vs. PulteGroup | Beazer Homes vs. Sekisui Chemical Co |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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