Correlation Between CVS Health and KB Home

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Can any of the company-specific risk be diversified away by investing in both CVS Health 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 CVS Health and KB Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and KB Home, you can compare the effects of market volatilities on CVS Health 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 CVS Health with a short position of KB Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and KB Home.

Diversification Opportunities for CVS Health and KB Home

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between CVS and KBH is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and CVS Health 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 CVS Health 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 CVS Health i.e., CVS Health and KB Home go up and down completely randomly.

Pair Corralation between CVS Health and KB Home

Assuming the 90 days trading horizon CVS Health is expected to under-perform the KB Home. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health is 1.09 times less risky than KB Home. The stock trades about -0.03 of its potential returns per unit of risk. The KB Home is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  53,690  in KB Home on August 29, 2024 and sell it today you would earn a total of  103,010  from holding KB Home or generate 191.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

CVS Health  vs.  KB Home

 Performance 
       Timeline  
CVS Health 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.
KB Home 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
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.

CVS Health and KB Home Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVS Health and KB Home

The main advantage of trading using opposite CVS Health and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health 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.
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The idea behind CVS Health 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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