Correlation Between Martin Marietta and KB Home

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

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

Diversification Opportunities for Martin Marietta and KB Home

0.3

Correlation Coefficient

Martin Marietta  KB Home

Weak diversification

The 3 months correlation between Martin and KBH is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and Martin Marietta 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 Martin Marietta Materials 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 Martin Marietta i.e., Martin Marietta and KB Home go up and down completely randomly.

Pair Corralation between Martin Marietta and KB Home

Assuming the 90 days trading horizon Martin Marietta is expected to generate 1.67 times less return on investment than KB Home. But when comparing it to its historical volatility, Martin Marietta Materials is 1.64 times less risky than KB Home. It trades about 0.08 of its potential returns per unit of risk. KB Home is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  135,985  in KB Home on September 14, 2024 and sell it today you would earn a total of  20,715  from holding KB Home or generate 15.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Martin Marietta Materials  vs.  KB Home

Martin Marietta Materials

Risk-Adjusted Performance

6 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Marietta Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, Martin Marietta may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KB Home

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, KB Home showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Martin Marietta and KB Home

The main advantage of trading using opposite Martin Marietta and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta 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 Martin Marietta Materials 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.