Correlation Between TRI Pointe and KB Home

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

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

Diversification Opportunities for TRI Pointe and KB Home

0.83

Correlation Coefficient

TRI Pointe  KB Home

Very poor diversification

The 3 months correlation between TRI and KBH is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding TRI Pointe Homes and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and TRI Pointe 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 TRI Pointe 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 TRI Pointe i.e., TRI Pointe and KB Home go up and down completely randomly.

Pair Corralation between TRI Pointe and KB Home

Considering the 90-day investment horizon TRI Pointe Homes is expected to generate 0.7 times more return on investment than KB Home. However, TRI Pointe Homes is 1.44 times less risky than KB Home. It trades about 0.22 of its potential returns per unit of risk. KB Home is currently generating about 0.14 per unit of risk. If you would invest  4,050  in TRI Pointe Homes on September 2, 2024 and sell it today you would earn a total of  303.00  from holding TRI Pointe Homes or generate 7.48% return on investment over 90 days.

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

TRI Pointe Homes  vs.  KB Home

TRI Pointe Homes

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TRI Pointe Homes are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, TRI Pointe is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

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 TRI Pointe and KB Home

The main advantage of trading using opposite TRI Pointe and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRI Pointe 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 TRI Pointe 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.