Correlation Between KB Home and TRI Pointe

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

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

Diversification Opportunities for KB Home and TRI Pointe

0.93

Correlation Coefficient

KB Home  TRI Pointe

Almost no diversification

The 3 months correlation between KBH and TRI is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of KB Home i.e., KB Home and TRI Pointe go up and down completely randomly.

Pair Corralation between KB Home and TRI Pointe

Considering the 90-day investment horizon KB Home is expected to generate 0.9 times more return on investment than TRI Pointe. However, KB Home is 1.12 times less risky than TRI Pointe. It trades about -0.09 of its potential returns per unit of risk. TRI Pointe Homes is currently generating about -0.08 per unit of risk. If you would invest  6,602  in KB Home on December 25, 2024 and sell it today you would lose (745.00) from holding KB Home or give up 11.28% 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.  TRI Pointe Homes

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 latest inconsistent performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

TRI Pointe Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with KB Home and TRI Pointe

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

The idea behind KB Home and TRI Pointe Homes 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.