Correlation Between Cognizant Technology and KB Home
Can any of the company-specific risk be diversified away by investing in both Cognizant Technology 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 Cognizant Technology and KB Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cognizant Technology Solutions and KB Home, you can compare the effects of market volatilities on Cognizant Technology 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 Cognizant Technology with a short position of KB Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and KB Home.
Diversification Opportunities for Cognizant Technology and KB Home
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cognizant and KBH is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and Cognizant Technology 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 Cognizant Technology Solutions 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 Cognizant Technology i.e., Cognizant Technology and KB Home go up and down completely randomly.
Pair Corralation between Cognizant Technology and KB Home
Assuming the 90 days trading horizon Cognizant Technology is expected to generate 2.35 times less return on investment than KB Home. But when comparing it to its historical volatility, Cognizant Technology Solutions is 3.14 times less risky than KB Home. It trades about 0.16 of its potential returns per unit of risk. KB Home is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 104,810 in KB Home on August 29, 2024 and sell it today you would earn a total of 51,890 from holding KB Home or generate 49.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cognizant Technology Solutions vs. KB Home
Performance |
| Timeline |
| Cognizant Technology |
| KB Home |
Cognizant Technology and KB Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cognizant Technology and KB Home
The main advantage of trading using opposite Cognizant Technology and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology 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.| Cognizant Technology vs. International Business Machines | Cognizant Technology vs. DXC Technology | Cognizant Technology vs. The Select Sector | Cognizant Technology vs. SPDR Series Trust |
| KB Home vs. CVS Health | KB Home vs. FibraHotel | KB Home vs. UnitedHealth Group Incorporated | KB Home vs. Capital One Financial |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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