Correlation Between Century Communities and Beazer Homes

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

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

Diversification Opportunities for Century Communities and Beazer Homes

0.75

Correlation Coefficient

Century Communities  Beazer Homes

Poor diversification

The 3 months correlation between Century and Beazer is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Century Communities 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 Century Communities 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 Century Communities 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 Century Communities i.e., Century Communities and Beazer Homes go up and down completely randomly.

Pair Corralation between Century Communities and Beazer Homes

Considering the 90-day investment horizon Century Communities is expected to generate 1.0 times more return on investment than Beazer Homes. However, Century Communities is 1.0 times less risky than Beazer Homes. It trades about -0.22 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.25 per unit of risk. If you would invest  9,286  in Century Communities on January 26, 2024 and sell it today you would lose (1,072) from holding Century Communities or give up 11.54% of portfolio value over 90 days.

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

Century Communities  vs.  Beazer Homes USA

Century Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Century Communities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Century Communities and Beazer Homes

The main advantage of trading using opposite Century Communities and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Communities 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 Century Communities 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.