Correlation Between MDC Holdings and Beazer Homes

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

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

Diversification Opportunities for MDC Holdings and Beazer Homes

0.42

Correlation Coefficient

MDC Holdings  Beazer Homes

Very weak diversification

The 3 months correlation between MDC and Beazer is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings 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 MDC Holdings 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 MDC Holdings 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 MDC Holdings i.e., MDC Holdings and Beazer Homes go up and down completely randomly.

Pair Corralation between MDC Holdings and Beazer Homes

If you would invest  2,983  in Beazer Homes USA on September 4, 2024 and sell it today you would earn a total of  490.00  from holding Beazer Homes USA or generate 16.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

MDC Holdings  vs.  Beazer Homes USA

MDC Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MDC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Beazer Homes USA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Beazer Homes demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MDC Holdings and Beazer Homes

The main advantage of trading using opposite MDC Holdings and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MDC Holdings 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 MDC Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.