Correlation Between CDW and Beazer Homes

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Can any of the company-specific risk be diversified away by investing in both CDW and Beazer 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 CDW and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CDW Corporation and Beazer Homes USA, you can compare the effects of market volatilities on CDW and Beazer 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 CDW with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDW and Beazer Homes.

Diversification Opportunities for CDW and Beazer Homes

CDWBeazerDiversified AwayCDWBeazerDiversified Away100%
-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between CDW and Beazer is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding CDW Corp. and Beazer Homes USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beazer Homes USA and CDW 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 CDW Corporation are associated (or correlated) with Beazer Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beazer Homes USA has no effect on the direction of CDW i.e., CDW and Beazer Homes go up and down completely randomly.

Pair Corralation between CDW and Beazer Homes

Assuming the 90 days horizon CDW Corporation is expected to generate 0.64 times more return on investment than Beazer Homes. However, CDW Corporation is 1.57 times less risky than Beazer Homes. It trades about -0.06 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.06 per unit of risk. If you would invest  20,166  in CDW Corporation on October 20, 2024 and sell it today you would lose (1,986) from holding CDW Corporation or give up 9.85% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CDW Corp.  vs.  Beazer Homes USA

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -20-1001020
JavaScript chart by amCharts 3.21.15CDW BE4A
       Timeline  
CDW Corporation 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days CDW Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan165170175180185190195200
Beazer Homes USA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan2628303234

CDW and Beazer Homes Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.58-2.7-1.82-0.94-0.05970.771.62.433.264.09 0.040.050.060.070.08
JavaScript chart by amCharts 3.21.15CDW BE4A
       Returns  

Pair Trading with CDW and Beazer Homes

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

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