Correlation Between KB Home and PulteGroup

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

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

Diversification Opportunities for KB Home and PulteGroup

0.69

Correlation Coefficient

KB Home  PulteGroup

Poor diversification

The 3 months correlation between KBH and PulteGroup is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup 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 PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of KB Home i.e., KB Home and PulteGroup go up and down completely randomly.

Pair Corralation between KB Home and PulteGroup

Assuming the 90 days trading horizon KB Home is expected to generate 1.29 times more return on investment than PulteGroup. However, KB Home is 1.29 times more volatile than PulteGroup. It trades about 0.09 of its potential returns per unit of risk. PulteGroup is currently generating about 0.11 per unit of risk. If you would invest  53,690  in KB Home on October 12, 2024 and sell it today you would earn a total of  80,010  from holding KB Home or generate 149.02% return on investment over 90 days.

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

KB Home  vs.  PulteGroup

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.

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup 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 primary 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.

Pair Trading with KB Home and PulteGroup

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

The idea behind KB Home and PulteGroup 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.