Correlation Between KB Home and New Oriental

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

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

Diversification Opportunities for KB Home and New Oriental

0.17

Correlation Coefficient

KB Home  New Oriental

Average diversification

The 3 months correlation between KBH and New is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education 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 New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of KB Home i.e., KB Home and New Oriental go up and down completely randomly.

Pair Corralation between KB Home and New Oriental

Assuming the 90 days trading horizon KB Home is expected to generate 1.32 times more return on investment than New Oriental. However, KB Home is 1.32 times more volatile than New Oriental Education. It trades about 0.09 of its potential returns per unit of risk. New Oriental Education is currently generating about 0.0 per unit of risk. If you would invest  135,985  in KB Home on September 13, 2024 and sell it today you would earn a total of  20,715  from holding KB Home or generate 15.23% return on investment over 90 days.

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

KB Home  vs.  New Oriental Education

KB Home

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, KB Home showed solid returns over the last few months and may actually be approaching a breakup point.

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, New Oriental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KB Home and New Oriental

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

The idea behind KB Home and New Oriental Education 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.