Correlation Between MI Homes and KB Home

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

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

Diversification Opportunities for MI Homes and KB Home

0.82

Correlation Coefficient

MI Homes  KB Home

Very poor diversification

The 3 months correlation between MHO and KBH is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and MI Homes 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 MI Homes are associated (or correlated) with KB Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Home has no effect on the direction of MI Homes i.e., MI Homes and KB Home go up and down completely randomly.

Pair Corralation between MI Homes and KB Home

Considering the 90-day investment horizon MI Homes is expected to generate 1.0 times more return on investment than KB Home. However, MI Homes is 1.0 times less risky than KB Home. It trades about 0.2 of its potential returns per unit of risk. KB Home is currently generating about 0.14 per unit of risk. If you would invest  15,023  in MI Homes on September 2, 2024 and sell it today you would earn a total of  1,480  from holding MI Homes or generate 9.85% return on investment over 90 days.

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

MI Homes  vs.  KB Home

MI Homes

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KB Home

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, KB Home is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MI Homes and KB Home

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

The idea behind MI Homes and KB Home 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.