Correlation Between Legacy Housing and Beazer Homes

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

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

Diversification Opportunities for Legacy Housing and Beazer Homes

0.73

Correlation Coefficient

Legacy Housing  Beazer Homes

Poor diversification

The 3 months correlation between Legacy and Beazer is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Housing Corp 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 Legacy Housing 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 Legacy Housing Corp 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 Legacy Housing i.e., Legacy Housing and Beazer Homes go up and down completely randomly.

Pair Corralation between Legacy Housing and Beazer Homes

Given the investment horizon of 90 days Legacy Housing is expected to generate 2.23 times less return on investment than Beazer Homes. But when comparing it to its historical volatility, Legacy Housing Corp is 1.36 times less risky than Beazer Homes. It trades about 0.05 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,113  in Beazer Homes USA on July 30, 2024 and sell it today you would earn a total of  1,989  from holding Beazer Homes USA or generate 178.71% return on investment over 90 days.

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

Legacy Housing Corp  vs.  Beazer Homes USA

Legacy Housing Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legacy Housing Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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.

Pair Trading with Legacy Housing and Beazer Homes

The main advantage of trading using opposite Legacy Housing and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legacy Housing 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 Legacy Housing Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.