Correlation Between Beazer Homes and Lennar

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

Diversification Opportunities for Beazer Homes and Lennar

0.89

Correlation Coefficient

Beazer Homes  Lennar

Very poor diversification

The 3 months correlation between Beazer and Lennar is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Beazer Homes i.e., Beazer Homes and Lennar go up and down completely randomly.

Pair Corralation between Beazer Homes and Lennar

Considering the 90-day investment horizon Beazer Homes USA is expected to generate 1.76 times more return on investment than Lennar. However, Beazer Homes is 1.76 times more volatile than Lennar. It trades about 0.05 of its potential returns per unit of risk. Lennar is currently generating about 0.05 per unit of risk. If you would invest  1,637  in Beazer Homes USA on October 22, 2024 and sell it today you would earn a total of  1,188  from holding Beazer Homes USA or generate 72.57% return on investment over 90 days.

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

Beazer Homes USA  vs.  Lennar

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 latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Beazer Homes and Lennar

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

The idea behind Beazer Homes USA and Lennar 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.