Correlation Between KB Home and Tesla
Can any of the company-specific risk be diversified away by investing in both KB Home and Tesla 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 Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and Tesla Inc, you can compare the effects of market volatilities on KB Home and Tesla 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 Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and Tesla.
Diversification Opportunities for KB Home and Tesla
Modest diversification
The 3 months correlation between KBH and Tesla is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of KB Home i.e., KB Home and Tesla go up and down completely randomly.
Pair Corralation between KB Home and Tesla
Assuming the 90 days trading horizon KB Home is expected to generate 3.33 times less return on investment than Tesla. But when comparing it to its historical volatility, KB Home is 1.52 times less risky than Tesla. It trades about 0.09 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 418,339 in Tesla Inc on August 30, 2024 and sell it today you would earn a total of 266,661 from holding Tesla Inc or generate 63.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KB Home vs. Tesla Inc
Performance |
| Timeline |
| KB Home |
| Tesla Inc |
KB Home and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and Tesla
The main advantage of trading using opposite KB Home and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.| KB Home vs. New Oriental Education | KB Home vs. FibraHotel | KB Home vs. Genworth Financial | KB Home vs. Grupo Hotelero Santa |
| Tesla vs. Southern Copper | Tesla vs. Ameriprise Financial | Tesla vs. Monster Beverage Corp | Tesla vs. Delta Air Lines |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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