Correlation Between KB HOME and Merafe Resources

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

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

Diversification Opportunities for KB HOME and Merafe Resources

0.72

Correlation Coefficient

KB HOME  Merafe Resources

Poor diversification

The 3 months correlation between KBH and Merafe is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and Merafe Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merafe Resources 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 Merafe Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merafe Resources has no effect on the direction of KB HOME i.e., KB HOME and Merafe Resources go up and down completely randomly.

Pair Corralation between KB HOME and Merafe Resources

Assuming the 90 days trading horizon KB HOME is expected to under-perform the Merafe Resources. But the stock apears to be less risky and, when comparing its historical volatility, KB HOME is 2.99 times less risky than Merafe Resources. The stock trades about -0.13 of its potential returns per unit of risk. The Merafe Resources Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7.40  in Merafe Resources Limited on December 26, 2024 and sell it today you would lose (1.00) from holding Merafe Resources Limited or give up 13.51% of portfolio value over 90 days.

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

KB HOME  vs.  Merafe Resources Limited

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

Merafe Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merafe Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Merafe Resources 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 Merafe Resources

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

The idea behind KB HOME and Merafe Resources Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.