Correlation Between NIPPON PROLOGIS and Beazer Homes

Can any of the company-specific risk be diversified away by investing in both NIPPON PROLOGIS 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 NIPPON PROLOGIS and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIPPON PROLOGIS REIT and Beazer Homes USA, you can compare the effects of market volatilities on NIPPON PROLOGIS 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 NIPPON PROLOGIS with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON PROLOGIS and Beazer Homes.

Diversification Opportunities for NIPPON PROLOGIS and Beazer Homes

-0.37

Correlation Coefficient

NIPPON PROLOGIS  Beazer Homes

Very good diversification

The 3 months correlation between NIPPON and Beazer is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON PROLOGIS REIT 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 NIPPON PROLOGIS 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 NIPPON PROLOGIS REIT 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 NIPPON PROLOGIS i.e., NIPPON PROLOGIS and Beazer Homes go up and down completely randomly.

Pair Corralation between NIPPON PROLOGIS and Beazer Homes

Assuming the 90 days trading horizon NIPPON PROLOGIS REIT is expected to under-perform the Beazer Homes. But the stock apears to be less risky and, when comparing its historical volatility, NIPPON PROLOGIS REIT is 2.38 times less risky than Beazer Homes. The stock trades about -0.07 of its potential returns per unit of risk. The Beazer Homes USA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,660  in Beazer Homes USA on September 4, 2024 and sell it today you would earn a total of  600.00  from holding Beazer Homes USA or generate 22.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

NIPPON PROLOGIS REIT  vs.  Beazer Homes USA

NIPPON PROLOGIS REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIPPON PROLOGIS REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NIPPON PROLOGIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Beazer Homes USA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Beazer Homes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIPPON PROLOGIS and Beazer Homes

The main advantage of trading using opposite NIPPON PROLOGIS and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NIPPON PROLOGIS 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 NIPPON PROLOGIS REIT 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.