Correlation Between Beazer Homes and Bank of Montreal

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

Diversification Opportunities for Beazer Homes and Bank of Montreal

-0.22

Correlation Coefficient

Beazer Homes  Bank of Montreal

Very good diversification

The 3 months correlation between Beazer and Bank is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal 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 Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Beazer Homes i.e., Beazer Homes and Bank of Montreal go up and down completely randomly.

Pair Corralation between Beazer Homes and Bank of Montreal

Assuming the 90 days trading horizon Beazer Homes is expected to generate 1.13 times less return on investment than Bank of Montreal. In addition to that, Beazer Homes is 2.48 times more volatile than Bank of Montreal. It trades about 0.02 of its total potential returns per unit of risk. Bank of Montreal is currently generating about 0.06 per unit of volatility. If you would invest  7,371  in Bank of Montreal on October 23, 2024 and sell it today you would earn a total of  2,189  from holding Bank of Montreal or generate 29.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.75%
Values	Daily Returns

Beazer Homes USA  vs.  Bank of Montreal

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. Despite nearly stable basic indicators, Beazer Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bank of Montreal

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank of Montreal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beazer Homes and Bank of Montreal

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

The idea behind Beazer Homes USA and Bank of Montreal 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.