Correlation Between Beazer Homes and MI Homes

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

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

Diversification Opportunities for Beazer Homes and MI Homes

0.93

Correlation Coefficient

Beazer Homes  MI Homes

Almost no diversification

The 3 months correlation between Beazer and MHO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Beazer Homes 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 Beazer Homes USA are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Beazer Homes i.e., Beazer Homes and MI Homes go up and down completely randomly.

Pair Corralation between Beazer Homes and MI Homes

Considering the 90-day investment horizon Beazer Homes USA is expected to under-perform the MI Homes. In addition to that, Beazer Homes is 1.08 times more volatile than MI Homes. It trades about -0.19 of its total potential returns per unit of risk. MI Homes is currently generating about -0.02 per unit of volatility. If you would invest  12,420  in MI Homes on February 4, 2024 and sell it today you would lose (218.00) from holding MI Homes or give up 1.76% of portfolio value over 90 days.

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

Beazer Homes USA  vs.  MI Homes

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 fairly strong basic indicators, Beazer Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, MI Homes is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Beazer Homes and MI Homes

The main advantage of trading using opposite Beazer Homes and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beazer Homes position performs unexpectedly, MI 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 MI Homes will offset losses from the drop in MI Homes' long position.

The idea behind Beazer Homes USA and MI Homes 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.