Correlation Between Beazer Homes and CAIRN HOMES

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

Diversification Opportunities for Beazer Homes and CAIRN HOMES

0.44

Correlation Coefficient

Beazer Homes  CAIRN HOMES

Very weak diversification

The 3 months correlation between Beazer and CAIRN is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and CAIRN HOMES EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAIRN HOMES EO 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 CAIRN HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAIRN HOMES EO has no effect on the direction of Beazer Homes i.e., Beazer Homes and CAIRN HOMES go up and down completely randomly.

Pair Corralation between Beazer Homes and CAIRN HOMES

Assuming the 90 days trading horizon Beazer Homes USA is expected to under-perform the CAIRN HOMES. In addition to that, Beazer Homes is 1.46 times more volatile than CAIRN HOMES EO. It trades about -0.14 of its total potential returns per unit of risk. CAIRN HOMES EO is currently generating about -0.06 per unit of volatility. If you would invest  238.00  in CAIRN HOMES EO on December 21, 2024 and sell it today you would lose (23.00) from holding CAIRN HOMES EO or give up 9.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Beazer Homes USA  vs.  CAIRN HOMES EO

Beazer Homes USA

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CAIRN HOMES EO

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAIRN HOMES EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Beazer Homes and CAIRN HOMES

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

The idea behind Beazer Homes USA and CAIRN HOMES EO 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.