Correlation Between Capital Income and Beazer Homes

Can any of the company-specific risk be diversified away by investing in both Capital Income 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 Capital Income and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Income Builder and Beazer Homes USA, you can compare the effects of market volatilities on Capital Income 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 Capital Income with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Beazer Homes.

Diversification Opportunities for Capital Income and Beazer Homes

-0.76

Correlation Coefficient

Capital Income  Beazer Homes

Pay attention - limited upside

The 3 months correlation between Capital and Beazer is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder 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 Capital Income 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 Capital Income Builder 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 Capital Income i.e., Capital Income and Beazer Homes go up and down completely randomly.

Pair Corralation between Capital Income and Beazer Homes

Assuming the 90 days horizon Capital Income Builder is expected to generate 0.15 times more return on investment than Beazer Homes. However, Capital Income Builder is 6.66 times less risky than Beazer Homes. It trades about 0.14 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.12 per unit of risk. If you would invest  6,853  in Capital Income Builder on December 29, 2024 and sell it today you would earn a total of  324.00  from holding Capital Income Builder or generate 4.73% return on investment over 90 days.

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

Capital Income Builder  vs.  Beazer Homes USA

Capital Income Builder

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Capital Income and Beazer Homes

The main advantage of trading using opposite Capital Income and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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 Capital Income Builder 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.