Correlation Between Merafe Resources and KB HOME

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

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

Diversification Opportunities for Merafe Resources and KB HOME

-0.17

Correlation Coefficient

Merafe Resources  KB HOME

Good diversification

The 3 months correlation between Merafe and KBH is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Merafe Resources Limited and KB HOME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB HOME and Merafe Resources 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 Merafe Resources Limited 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 Merafe Resources i.e., Merafe Resources and KB HOME go up and down completely randomly.

Pair Corralation between Merafe Resources and KB HOME

Assuming the 90 days horizon Merafe Resources Limited is expected to generate 2.21 times more return on investment than KB HOME. However, Merafe Resources is 2.21 times more volatile than KB HOME. It trades about 0.02 of its potential returns per unit of risk. KB HOME is currently generating about -0.08 per unit of risk. If you would invest  7.70  in Merafe Resources Limited on September 15, 2024 and sell it today you would lose (0.20) from holding Merafe Resources Limited or give up 2.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Merafe Resources Limited  vs.  KB HOME

Merafe Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merafe Resources Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Merafe Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Merafe Resources and KB HOME

The main advantage of trading using opposite Merafe Resources and KB HOME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merafe Resources 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 Merafe Resources Limited 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.