Correlation Between Beazer Homes and Legacy Housing

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

Diversification Opportunities for Beazer Homes and Legacy Housing

0.41

Correlation Coefficient

Beazer Homes  Legacy Housing

Very weak diversification

The 3 months correlation between Beazer and Legacy is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Legacy Housing Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Housing Corp 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 Legacy Housing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Housing Corp has no effect on the direction of Beazer Homes i.e., Beazer Homes and Legacy Housing go up and down completely randomly.

Pair Corralation between Beazer Homes and Legacy Housing

Considering the 90-day investment horizon Beazer Homes USA is expected to generate 1.32 times more return on investment than Legacy Housing. However, Beazer Homes is 1.32 times more volatile than Legacy Housing Corp. It trades about 0.02 of its potential returns per unit of risk. Legacy Housing Corp is currently generating about -0.04 per unit of risk. If you would invest  3,192  in Beazer Homes USA on September 12, 2024 and sell it today you would earn a total of  26.00  from holding Beazer Homes USA or generate 0.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Beazer Homes USA  vs.  Legacy Housing Corp

Beazer Homes USA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Beazer Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Legacy Housing Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legacy Housing Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Legacy Housing is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Beazer Homes and Legacy Housing

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

The idea behind Beazer Homes USA and Legacy Housing Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.