Correlation Between KB HOME and ON SEMICONDUCTOR

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

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

Diversification Opportunities for KB HOME and ON SEMICONDUCTOR

0.4

Correlation Coefficient

KB HOME  ON SEMICONDUCTOR

Very weak diversification

The 3 months correlation between KBH and XS4 is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and ON SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON SEMICONDUCTOR 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 ON SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON SEMICONDUCTOR has no effect on the direction of KB HOME i.e., KB HOME and ON SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between KB HOME and ON SEMICONDUCTOR

Assuming the 90 days trading horizon KB HOME is expected to under-perform the ON SEMICONDUCTOR. But the stock apears to be less risky and, when comparing its historical volatility, KB HOME is 1.29 times less risky than ON SEMICONDUCTOR. The stock trades about -0.2 of its potential returns per unit of risk. The ON SEMICONDUCTOR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,388  in ON SEMICONDUCTOR on October 6, 2024 and sell it today you would lose (175.00) from holding ON SEMICONDUCTOR or give up 2.74% of portfolio value over 90 days.

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

KB HOME  vs.  ON SEMICONDUCTOR

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 latest uncertain 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.

ON SEMICONDUCTOR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ON SEMICONDUCTOR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ON SEMICONDUCTOR is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with KB HOME and ON SEMICONDUCTOR

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

The idea behind KB HOME and ON SEMICONDUCTOR 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.