Correlation Between KB Home and NIKE

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

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

Diversification Opportunities for KB Home and NIKE

-0.06

Correlation Coefficient

KB Home  NIKE

Good diversification

The 3 months correlation between KBH and NIKE is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE Inc 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 NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of KB Home i.e., KB Home and NIKE go up and down completely randomly.

Pair Corralation between KB Home and NIKE

Assuming the 90 days trading horizon KB Home is expected to generate 1.09 times more return on investment than NIKE. However, KB Home is 1.09 times more volatile than NIKE Inc. It trades about 0.05 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.02 per unit of risk. If you would invest  105,001  in KB Home on September 25, 2024 and sell it today you would earn a total of  28,699  from holding KB Home or generate 27.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

KB Home  vs.  NIKE Inc

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with KB Home and NIKE

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

The idea behind KB Home and NIKE Inc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.