Correlation Between DAX Index and KB HOME

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

Diversification Opportunities for DAX Index and KB HOME

0.11
  Correlation Coefficient

Average diversification

The 3 months correlation between DAX and KBH is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and KB HOME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB HOME and DAX Index 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 DAX Index 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 DAX Index i.e., DAX Index and KB HOME go up and down completely randomly.
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Pair Corralation between DAX Index and KB HOME

Assuming the 90 days trading horizon DAX Index is expected to under-perform the KB HOME. But the index apears to be less risky and, when comparing its historical volatility, DAX Index is 1.62 times less risky than KB HOME. The index trades about -0.03 of its potential returns per unit of risk. The KB HOME is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7,226  in KB HOME on August 25, 2024 and sell it today you would earn a total of  324.00  from holding KB HOME or generate 4.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  KB HOME

 Performance 
       Timeline  

DAX Index and KB HOME Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and KB HOME

The main advantage of trading using opposite DAX Index and KB HOME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index 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 DAX Index 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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