Correlation Between Beazer Homes and Federated Mortgage

Can any of the company-specific risk be diversified away by investing in both Beazer Homes and Federated Mortgage 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 Federated Mortgage 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 Federated Mortgage Fund, you can compare the effects of market volatilities on Beazer Homes and Federated Mortgage 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 Federated Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beazer Homes and Federated Mortgage.

Diversification Opportunities for Beazer Homes and Federated Mortgage

0.73

Correlation Coefficient

Beazer Homes  Federated Mortgage

Poor diversification

The 3 months correlation between Beazer and Federated is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Federated Mortgage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Mortgage 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 Federated Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Mortgage has no effect on the direction of Beazer Homes i.e., Beazer Homes and Federated Mortgage go up and down completely randomly.

Pair Corralation between Beazer Homes and Federated Mortgage

Considering the 90-day investment horizon Beazer Homes USA is expected to generate 7.33 times more return on investment than Federated Mortgage. However, Beazer Homes is 7.33 times more volatile than Federated Mortgage Fund. It trades about 0.05 of its potential returns per unit of risk. Federated Mortgage Fund is currently generating about 0.0 per unit of risk. If you would invest  1,538  in Beazer Homes USA on January 25, 2024 and sell it today you would earn a total of  1,250  from holding Beazer Homes USA or generate 81.27% return on investment over 90 days.

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

Beazer Homes USA  vs.  Federated Mortgage Fund

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 latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Federated Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Mortgage Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beazer Homes and Federated Mortgage

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

The idea behind Beazer Homes USA and Federated Mortgage Fund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.