Correlation Between KB Home and HSBC Holdings

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

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

Diversification Opportunities for KB Home and HSBC Holdings

-0.5

Correlation Coefficient

KB Home  HSBC Holdings

Very good diversification

The 3 months correlation between KBH and HSBC is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and HSBC Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings plc 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 HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings plc has no effect on the direction of KB Home i.e., KB Home and HSBC Holdings go up and down completely randomly.

Pair Corralation between KB Home and HSBC Holdings

Assuming the 90 days trading horizon KB Home is expected to under-perform the HSBC Holdings. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 1.31 times less risky than HSBC Holdings. The stock trades about -0.16 of its potential returns per unit of risk. The HSBC Holdings plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  76,171  in HSBC Holdings plc on October 20, 2024 and sell it today you would earn a total of  17,329  from holding HSBC Holdings plc or generate 22.75% return on investment over 90 days.

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

KB Home  vs.  HSBC Holdings plc

KB Home

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

HSBC Holdings plc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, HSBC Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and HSBC Holdings

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

The idea behind KB Home and HSBC Holdings plc 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.