Correlation Between KB Home and American Express
Can any of the company-specific risk be diversified away by investing in both KB Home and American Express 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 KB Home and American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and American Express, you can compare the effects of market volatilities on KB Home and American Express 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 KB Home with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and American Express.
Diversification Opportunities for KB Home and American Express
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between KBH and American is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and KB Home 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 KB Home are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of KB Home i.e., KB Home and American Express go up and down completely randomly.
Pair Corralation between KB Home and American Express
Assuming the 90 days trading horizon KB Home is expected to under-perform the American Express. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 1.6 times less risky than American Express. The stock trades about -0.21 of its potential returns per unit of risk. The American Express is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 541,751 in American Express on September 1, 2024 and sell it today you would earn a total of 86,249 from holding American Express or generate 15.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
KB Home vs. American Express
Performance |
| Timeline |
| KB Home |
| American Express |
KB Home and American Express Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and American Express
The main advantage of trading using opposite KB Home and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.| KB Home vs. Lennar | KB Home vs. Desarrolladora Homex SAB | KB Home vs. Urbi Desarrollos Urbanos | KB Home vs. Sare Holding SAB |
| American Express vs. United Airlines Holdings | American Express vs. McEwen Mining | American Express vs. Micron Technology | American Express vs. Hoteles City Express |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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