Correlation Between KB Home and Travelers Companies

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

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

Diversification Opportunities for KB Home and Travelers Companies

-0.42

Correlation Coefficient

KB Home  Travelers Companies

Very good diversification

The 3 months correlation between KBH and Travelers is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of KB Home i.e., KB Home and Travelers Companies go up and down completely randomly.

Pair Corralation between KB Home and Travelers Companies

Assuming the 90 days trading horizon KB Home is expected to generate 1.17 times more return on investment than Travelers Companies. However, KB Home is 1.17 times more volatile than The Travelers Companies. It trades about 0.09 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.05 per unit of risk. If you would invest  53,690  in KB Home on October 14, 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 Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

KB Home  vs.  The Travelers Companies

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 unsteady 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.

The Travelers Companies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Travelers Companies

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

The idea behind KB Home and The Travelers Companies 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.