Correlation Between KB Home and Deutsche Bank

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

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

Diversification Opportunities for KB Home and Deutsche Bank

-0.55

Correlation Coefficient

KB Home  Deutsche Bank

Excellent diversification

The 3 months correlation between KBH and Deutsche is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Deutsche Bank Aktiengesellscha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Bank Aktien and KB Home 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 KB Home are associated (or correlated) with Deutsche Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Bank Aktien has no effect on the direction of KB Home i.e., KB Home and Deutsche Bank go up and down completely randomly.

Pair Corralation between KB Home and Deutsche Bank

Assuming the 90 days trading horizon KB Home is expected to under-perform the Deutsche Bank. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 4.57 times less risky than Deutsche Bank. The stock trades about -0.07 of its potential returns per unit of risk. The Deutsche Bank Aktiengesellschaft is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  35,804  in Deutsche Bank Aktiengesellschaft on December 29, 2024 and sell it today you would earn a total of  13,736  from holding Deutsche Bank Aktiengesellschaft or generate 38.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.32%
Values	Daily Returns

KB Home  vs.  Deutsche Bank Aktiengesellscha

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. In spite of fairly strong technical indicators, KB Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Deutsche Bank Aktien

Risk-Adjusted Performance

Solid

Over the last 90 days Deutsche Bank Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Deutsche Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Deutsche Bank

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

The idea behind KB Home and Deutsche Bank Aktiengesellschaft 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.