Correlation Between Beazer Homes and Topbuild Corp

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

Diversification Opportunities for Beazer Homes and Topbuild Corp

0.73

Correlation Coefficient

Beazer Homes  Topbuild Corp

Poor diversification

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

Pair Corralation between Beazer Homes and Topbuild Corp

Considering the 90-day investment horizon Beazer Homes USA is expected to under-perform the Topbuild Corp. But the stock apears to be less risky and, when comparing its historical volatility, Beazer Homes USA is 1.49 times less risky than Topbuild Corp. The stock trades about -0.46 of its potential returns per unit of risk. The Topbuild Corp is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  37,305  in Topbuild Corp on September 23, 2024 and sell it today you would lose (6,277) from holding Topbuild Corp or give up 16.83% of portfolio value over 90 days.

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

Beazer Homes USA  vs.  Topbuild Corp

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 January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Topbuild Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Beazer Homes and Topbuild Corp

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

The idea behind Beazer Homes USA and Topbuild Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.