Correlation Between KB Home and Toyota

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

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

Diversification Opportunities for KB Home and Toyota

-0.1

Correlation Coefficient

KB Home  Toyota

Good diversification

The 3 months correlation between KBH and Toyota is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of KB Home i.e., KB Home and Toyota go up and down completely randomly.

Pair Corralation between KB Home and Toyota

Assuming the 90 days trading horizon KB Home is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 1.72 times less risky than Toyota. The stock trades about -0.14 of its potential returns per unit of risk. The Toyota Motor is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  354,700  in Toyota Motor on October 22, 2024 and sell it today you would earn a total of  46,300  from holding Toyota Motor or generate 13.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.51%
Values	Daily Returns

KB Home  vs.  Toyota Motor

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.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Solid

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

Pair Trading with KB Home and Toyota

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

The idea behind KB Home and Toyota Motor 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 Anywhere module to track or share privately all of your investments from the convenience of any device.