Correlation Between KB Home and Vertex Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both KB Home and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and Vertex Pharmaceuticals, you can compare the effects of market volatilities on KB Home and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and Vertex Pharmaceuticals.
Diversification Opportunities for KB Home and Vertex Pharmaceuticals
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between KBH and Vertex is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of KB Home i.e., KB Home and Vertex Pharmaceuticals go up and down completely randomly.
Pair Corralation between KB Home and Vertex Pharmaceuticals
Assuming the 90 days trading horizon KB Home is expected to under-perform the Vertex Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 2.35 times less risky than Vertex Pharmaceuticals. The stock trades about -0.15 of its potential returns per unit of risk. The Vertex Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 928,685 in Vertex Pharmaceuticals on September 13, 2024 and sell it today you would earn a total of 18,384 from holding Vertex Pharmaceuticals or generate 1.98% 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. Vertex Pharmaceuticals
Performance |
| Timeline |
| KB Home |
| Vertex Pharmaceuticals |
KB Home and Vertex Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and Vertex Pharmaceuticals
The main advantage of trading using opposite KB Home and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position.| KB Home vs. Lennar | KB Home vs. Servicios Corporativos Javer | KB Home vs. Desarrolladora Homex SAB | KB Home vs. Sare Holding SAB |
| Vertex Pharmaceuticals vs. DXC Technology | Vertex Pharmaceuticals vs. Monster Beverage Corp | Vertex Pharmaceuticals vs. KB Home | Vertex Pharmaceuticals vs. Martin Marietta Materials |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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