Correlation Between Texas Roadhouse and Beazer Homes

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

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

Diversification Opportunities for Texas Roadhouse and Beazer Homes

0.65

Correlation Coefficient

Texas Roadhouse  Beazer Homes

Poor diversification

The 3 months correlation between Texas and Beazer is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse 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 Texas Roadhouse 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 Texas Roadhouse 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 Texas Roadhouse i.e., Texas Roadhouse and Beazer Homes go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Beazer Homes

Assuming the 90 days horizon Texas Roadhouse is expected to generate 0.59 times more return on investment than Beazer Homes. However, Texas Roadhouse is 1.71 times less risky than Beazer Homes. It trades about 0.2 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.05 per unit of risk. If you would invest  14,478  in Texas Roadhouse on September 13, 2024 and sell it today you would earn a total of  3,832  from holding Texas Roadhouse or generate 26.47% return on investment over 90 days.

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

Texas Roadhouse  vs.  Beazer Homes USA

Texas Roadhouse

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Texas Roadhouse reported solid returns over the last few months and may actually be approaching a breakup point.

Beazer Homes USA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beazer Homes USA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Beazer Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Texas Roadhouse and Beazer Homes

The main advantage of trading using opposite Texas Roadhouse and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Roadhouse 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 Texas Roadhouse 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.