Correlation Between Cavco Industries and KB Home

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

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

Diversification Opportunities for Cavco Industries and KB Home

-0.48

Correlation Coefficient

Cavco Industries  KB Home

Very good diversification

The 3 months correlation between Cavco and KBH is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cavco Industries and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and Cavco Industries 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 Cavco Industries 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 Cavco Industries i.e., Cavco Industries and KB Home go up and down completely randomly.

Pair Corralation between Cavco Industries and KB Home

Given the investment horizon of 90 days Cavco Industries is expected to generate 0.93 times more return on investment than KB Home. However, Cavco Industries is 1.08 times less risky than KB Home. It trades about 0.15 of its potential returns per unit of risk. KB Home is currently generating about -0.09 per unit of risk. If you would invest  44,928  in Cavco Industries on December 26, 2024 and sell it today you would earn a total of  8,136  from holding Cavco Industries or generate 18.11% return on investment over 90 days.

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

Cavco Industries  vs.  KB Home

Cavco Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cavco Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cavco Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

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 latest inconsistent performance, the Stock's fundamental drivers 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 Cavco Industries and KB Home

The main advantage of trading using opposite Cavco Industries and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cavco Industries 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 Cavco Industries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.