Correlation Between Beazer Homes and LEGAL GENERAL

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

Diversification Opportunities for Beazer Homes and LEGAL GENERAL

-0.68

Correlation Coefficient

Beazer Homes  LEGAL GENERAL

Excellent diversification

The 3 months correlation between Beazer and LEGAL is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and LEGAL GENERAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGAL GENERAL 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 LEGAL GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGAL GENERAL has no effect on the direction of Beazer Homes i.e., Beazer Homes and LEGAL GENERAL go up and down completely randomly.

Pair Corralation between Beazer Homes and LEGAL GENERAL

Assuming the 90 days trading horizon Beazer Homes USA is expected to under-perform the LEGAL GENERAL. In addition to that, Beazer Homes is 1.99 times more volatile than LEGAL GENERAL. It trades about -0.13 of its total potential returns per unit of risk. LEGAL GENERAL is currently generating about 0.1 per unit of volatility. If you would invest  269.00  in LEGAL GENERAL on December 20, 2024 and sell it today you would earn a total of  27.00  from holding LEGAL GENERAL or generate 10.04% return on investment over 90 days.

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

Beazer Homes USA  vs.  LEGAL GENERAL

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 unsteady 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.

LEGAL GENERAL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LEGAL GENERAL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, LEGAL GENERAL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Beazer Homes and LEGAL GENERAL

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

The idea behind Beazer Homes USA and LEGAL GENERAL 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.