Correlation Between KB Home and Century Communities

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

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

Diversification Opportunities for KB Home and Century Communities

0.98

Correlation Coefficient

KB Home  Century Communities

Almost no diversification

The 3 months correlation between KBH and Century is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Century Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Communities 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 Century Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Communities has no effect on the direction of KB Home i.e., KB Home and Century Communities go up and down completely randomly.

Pair Corralation between KB Home and Century Communities

Considering the 90-day investment horizon KB Home is expected to under-perform the Century Communities. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 1.27 times less risky than Century Communities. The stock trades about -0.29 of its potential returns per unit of risk. The Century Communities is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  7,789  in Century Communities on December 1, 2024 and sell it today you would lose (846.00) from holding Century Communities or give up 10.86% of portfolio value over 90 days.

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

KB Home  vs.  Century Communities

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. Despite inconsistent performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Century Communities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Century Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental 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.

Pair Trading with KB Home and Century Communities

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

The idea behind KB Home and Century Communities 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.