Correlation Between Johnson Controls and Beazer Homes

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

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

Diversification Opportunities for Johnson Controls and Beazer Homes

0.03

Correlation Coefficient

Johnson Controls  Beazer Homes

Significant diversification

The 3 months correlation between Johnson and Beazer is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International 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 Johnson Controls 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 Johnson Controls International 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 Johnson Controls i.e., Johnson Controls and Beazer Homes go up and down completely randomly.

Pair Corralation between Johnson Controls and Beazer Homes

Assuming the 90 days trading horizon Johnson Controls International is expected to generate 0.76 times more return on investment than Beazer Homes. However, Johnson Controls International is 1.32 times less risky than Beazer Homes. It trades about -0.01 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.14 per unit of risk. If you would invest  7,659  in Johnson Controls International on December 22, 2024 and sell it today you would lose (240.00) from holding Johnson Controls International or give up 3.13% of portfolio value over 90 days.

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

Johnson Controls International  vs.  Beazer Homes USA

Johnson Controls Int

Risk-Adjusted Performance

Very Weak

Over the last 90 days Johnson Controls International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Johnson Controls is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Johnson Controls and Beazer Homes

The main advantage of trading using opposite Johnson Controls and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls 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 Johnson Controls International 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.