Correlation Between Beazer Homes and JD Sports

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

Diversification Opportunities for Beazer Homes and JD Sports

0.33

Correlation Coefficient

Beazer Homes  JD Sports

Weak diversification

The 3 months correlation between Beazer and JD Sports is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Beazer Homes i.e., Beazer Homes and JD Sports go up and down completely randomly.

Pair Corralation between Beazer Homes and JD Sports

Assuming the 90 days trading horizon Beazer Homes USA is expected to generate 1.18 times more return on investment than JD Sports. However, Beazer Homes is 1.18 times more volatile than JD Sports Fashion. It trades about -0.05 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.23 per unit of risk. If you would invest  3,034  in Beazer Homes USA on October 25, 2024 and sell it today you would lose (266.00) from holding Beazer Homes USA or give up 8.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.93%
Values	Daily Returns

Beazer Homes USA  vs.  JD Sports Fashion

Beazer Homes USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beazer Homes USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Beazer Homes and JD Sports

The main advantage of trading using opposite Beazer Homes and JD Sports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beazer Homes position performs unexpectedly, JD Sports 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 JD Sports will offset losses from the drop in JD Sports' long position.

The idea behind Beazer Homes USA and JD Sports Fashion 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.