Correlation Between Century Communities and KB Home

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

By analyzing existing cross correlation between Century Communities and KB Home, you can compare the effects of market volatilities on Century Communities and KB Home 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 KB Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Communities and KB Home.

Diversification Opportunities for Century Communities and KB Home

0.98

Correlation Coefficient

Century Communities  KB Home

Almost no diversification

The 3 months correlation between Century and KBH is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Century Communities and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home 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 KB Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Home has no effect on the direction of Century Communities i.e., Century Communities and KB Home go up and down completely randomly.

Pair Corralation between Century Communities and KB Home

Considering the 90-day investment horizon Century Communities is expected to generate 1.27 times more return on investment than KB Home. However, Century Communities is 1.27 times more volatile than KB Home. It trades about -0.22 of its potential returns per unit of risk. KB Home is currently generating about -0.29 per unit of risk. If you would invest  7,789  in Century Communities on December 1, 2024 and sell it today you would lose (846.00) from holding Century Communities or give up 10.86% of portfolio value over 90 days.

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

Century Communities  vs.  KB Home

Century Communities

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

KB Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days KB Home 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 fundamental drivers remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Century Communities and KB Home

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

The idea behind Century Communities and KB Home 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.