Correlation Between KB HOME and SOUTHWEST AIRLINES
Can any of the company-specific risk be diversified away by investing in both KB HOME and SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB HOME and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on KB HOME and SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB HOME and SOUTHWEST AIRLINES.
Diversification Opportunities for KB HOME and SOUTHWEST AIRLINES
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between KBH and SOUTHWEST is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOUTHWEST AIRLINES has no effect on the direction of KB HOME i.e., KB HOME and SOUTHWEST AIRLINES go up and down completely randomly.
Pair Corralation between KB HOME and SOUTHWEST AIRLINES
Assuming the 90 days trading horizon KB HOME is expected to generate 0.98 times more return on investment than SOUTHWEST AIRLINES. However, KB HOME is 1.02 times less risky than SOUTHWEST AIRLINES. It trades about 0.09 of its potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.06 per unit of risk. If you would invest 4,679 in KB HOME on August 27, 2024 and sell it today you would earn a total of 2,871 from holding KB HOME or generate 61.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KB HOME vs. SOUTHWEST AIRLINES
Performance |
| Timeline |
| KB HOME |
| SOUTHWEST AIRLINES |
KB HOME and SOUTHWEST AIRLINES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB HOME and SOUTHWEST AIRLINES
The main advantage of trading using opposite KB HOME and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB HOME position performs unexpectedly, SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES will offset losses from the drop in SOUTHWEST AIRLINES's long position.The idea behind KB HOME and SOUTHWEST AIRLINES 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.| SOUTHWEST AIRLINES vs. Penn National Gaming | SOUTHWEST AIRLINES vs. Boyd Gaming | SOUTHWEST AIRLINES vs. Hochschild Mining plc | SOUTHWEST AIRLINES vs. Scandinavian Tobacco Group |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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