Correlation Between KB HOME and American Homes

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

By analyzing existing cross correlation between KB HOME and American Homes 4, you can compare the effects of market volatilities on KB HOME and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB HOME and American Homes.

Diversification Opportunities for KB HOME and American Homes

0.09

Correlation Coefficient

KB HOME  American Homes

Significant diversification

The 3 months correlation between KBH and American is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of KB HOME i.e., KB HOME and American Homes go up and down completely randomly.

Pair Corralation between KB HOME and American Homes

Assuming the 90 days trading horizon KB HOME is expected to under-perform the American Homes. In addition to that, KB HOME is 1.06 times more volatile than American Homes 4. It trades about -0.09 of its total potential returns per unit of risk. American Homes 4 is currently generating about 0.02 per unit of volatility. If you would invest  3,430  in American Homes 4 on December 29, 2024 and sell it today you would earn a total of  30.00  from holding American Homes 4 or generate 0.87% return on investment over 90 days.

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

KB HOME  vs.  American Homes 4

KB HOME

Risk-Adjusted Performance

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KB HOME and American Homes

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

The idea behind KB HOME and American Homes 4 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.