Correlation Between Beazer Homes and Meritage

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

Diversification Opportunities for Beazer Homes and Meritage

0.92

Correlation Coefficient

Beazer Homes  Meritage

Almost no diversification

The 3 months correlation between Beazer and Meritage is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage 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 Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of Beazer Homes i.e., Beazer Homes and Meritage go up and down completely randomly.

Pair Corralation between Beazer Homes and Meritage

Considering the 90-day investment horizon Beazer Homes USA is expected to under-perform the Meritage. In addition to that, Beazer Homes is 1.71 times more volatile than Meritage. It trades about -0.18 of its total potential returns per unit of risk. Meritage is currently generating about -0.18 per unit of volatility. If you would invest  9,468  in Meritage on November 28, 2024 and sell it today you would lose (1,990) from holding Meritage or give up 21.02% of portfolio value over 90 days.

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

Beazer Homes USA  vs.  Meritage

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 inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Meritage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meritage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Beazer Homes and Meritage

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

The idea behind Beazer Homes USA and Meritage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.