Correlation Between CARSALES and Beazer Homes

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

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

Diversification Opportunities for CARSALES and Beazer Homes

0.76

Correlation Coefficient

CARSALES  Beazer Homes

Poor diversification

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

Pair Corralation between CARSALES and Beazer Homes

Assuming the 90 days trading horizon CARSALES is expected to generate 1.4 times less return on investment than Beazer Homes. But when comparing it to its historical volatility, CARSALESCOM is 1.95 times less risky than Beazer Homes. It trades about 0.07 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Beazer Homes USA on October 24, 2024 and sell it today you would earn a total of  1,200  from holding Beazer Homes USA or generate 80.0% return on investment over 90 days.

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

CARSALESCOM  vs.  Beazer Homes USA

CARSALESCOM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 nearly stable basic indicators, Beazer Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CARSALES and Beazer Homes

The main advantage of trading using opposite CARSALES and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALES 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 CARSALESCOM 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.