Correlation Between KB HOME and Digital Realty

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

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

Diversification Opportunities for KB HOME and Digital Realty

-0.09

Correlation Coefficient

KB HOME  Digital Realty

Good diversification

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

Pair Corralation between KB HOME and Digital Realty

Assuming the 90 days trading horizon KB HOME is expected to generate 1.47 times more return on investment than Digital Realty. However, KB HOME is 1.47 times more volatile than Digital Realty Trust. It trades about 0.09 of its potential returns per unit of risk. Digital Realty Trust is currently generating about 0.11 per unit of risk. If you would invest  3,958  in KB HOME on September 19, 2024 and sell it today you would earn a total of  2,642  from holding KB HOME or generate 66.75% return on investment over 90 days.

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

KB HOME  vs.  Digital Realty Trust

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Digital Realty Trust

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Realty Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB HOME and Digital Realty

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

The idea behind KB HOME and Digital Realty Trust 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.