Correlation Between Green Brick and Beazer Homes

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

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

Diversification Opportunities for Green Brick and Beazer Homes

0.6

Correlation Coefficient

Green Brick  Beazer Homes

Poor diversification

The 3 months correlation between Green and Beazer is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Green Brick Partners 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 Green Brick 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 Green Brick Partners 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 Green Brick i.e., Green Brick and Beazer Homes go up and down completely randomly.

Pair Corralation between Green Brick and Beazer Homes

Assuming the 90 days trading horizon Green Brick Partners is expected to generate 0.29 times more return on investment than Beazer Homes. However, Green Brick Partners is 3.49 times less risky than Beazer Homes. It trades about -0.3 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.65 per unit of risk. If you would invest  2,339  in Green Brick Partners on October 6, 2024 and sell it today you would lose (67.00) from holding Green Brick Partners or give up 2.86% of portfolio value over 90 days.

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

Green Brick Partners  vs.  Beazer Homes USA

Green Brick Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Green Brick Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Green Brick 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

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

Pair Trading with Green Brick and Beazer Homes

The main advantage of trading using opposite Green Brick and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Green Brick 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 Green Brick Partners 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.