Correlation Between KB Home and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both KB Home and Wells Fargo 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 Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and Wells Fargo, you can compare the effects of market volatilities on KB Home and Wells Fargo 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 Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and Wells Fargo.
Diversification Opportunities for KB Home and Wells Fargo
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between KBH and Wells is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of KB Home i.e., KB Home and Wells Fargo go up and down completely randomly.
Pair Corralation between KB Home and Wells Fargo
Assuming the 90 days trading horizon KB Home is expected to under-perform the Wells Fargo. But the stock apears to be less risky and, when comparing its historical volatility, KB Home is 2.52 times less risky than Wells Fargo. The stock trades about -0.2 of its potential returns per unit of risk. The Wells Fargo is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 129,256 in Wells Fargo on August 29, 2024 and sell it today you would earn a total of 28,744 from holding Wells Fargo or generate 22.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KB Home vs. Wells Fargo
Performance |
| Timeline |
| KB Home |
| Wells Fargo |
KB Home and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and Wells Fargo
The main advantage of trading using opposite KB Home and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, Wells Fargo 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 Wells Fargo will offset losses from the drop in Wells Fargo's long position.| KB Home vs. CVS Health | KB Home vs. FibraHotel | KB Home vs. UnitedHealth Group Incorporated | KB Home vs. Capital One Financial |
| Wells Fargo vs. CVS Health | Wells Fargo vs. DXC Technology | Wells Fargo vs. Genworth Financial | Wells Fargo vs. Grupo Carso SAB |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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