Correlation Between KB HOME and S A P

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

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

Diversification Opportunities for KB HOME and S A P

0.16

Correlation Coefficient

KB HOME  S A P

Average diversification

The 3 months correlation between KBH and SAP is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of KB HOME i.e., KB HOME and S A P go up and down completely randomly.

Pair Corralation between KB HOME and S A P

Assuming the 90 days trading horizon KB HOME is expected to under-perform the S A P. In addition to that, KB HOME is 1.25 times more volatile than SAP SE. It trades about -0.09 of its total potential returns per unit of risk. SAP SE is currently generating about 0.05 per unit of volatility. If you would invest  23,630  in SAP SE on December 29, 2024 and sell it today you would earn a total of  1,045  from holding SAP SE or generate 4.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

KB HOME  vs.  SAP SE

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.

SAP SE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, S A P is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with KB HOME and S A P

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

The idea behind KB HOME and SAP SE 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.