Correlation Between Crocs and Beazer Homes

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

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

Diversification Opportunities for Crocs and Beazer Homes

0.08

Correlation Coefficient

Crocs  Beazer Homes

Significant diversification

The 3 months correlation between Crocs and Beazer is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Crocs Inc 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 Crocs 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 Crocs Inc 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 Crocs i.e., Crocs and Beazer Homes go up and down completely randomly.

Pair Corralation between Crocs and Beazer Homes

Given the investment horizon of 90 days Crocs Inc is expected to generate 0.76 times more return on investment than Beazer Homes. However, Crocs Inc is 1.31 times less risky than Beazer Homes. It trades about -0.26 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  14,005  in Crocs Inc on January 26, 2024 and sell it today you would lose (1,428) from holding Crocs Inc or give up 10.2% of portfolio value over 90 days.

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

Crocs Inc  vs.  Beazer Homes USA

Crocs Inc

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crocs Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Crocs showed solid returns over the last few months and may actually be approaching a breakup point.

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 Crocs and Beazer Homes

The main advantage of trading using opposite Crocs and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crocs 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 Crocs Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.