Correlation Between KB HOME and Warner Music
Can any of the company-specific risk be diversified away by investing in both KB HOME and Warner Music 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 Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB HOME and Warner Music Group, you can compare the effects of market volatilities on KB HOME and Warner Music 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 Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB HOME and Warner Music.
Diversification Opportunities for KB HOME and Warner Music
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between KBH and Warner is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group 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 Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of KB HOME i.e., KB HOME and Warner Music go up and down completely randomly.
Pair Corralation between KB HOME and Warner Music
Assuming the 90 days trading horizon KB HOME is expected to generate 14.01 times less return on investment than Warner Music. In addition to that, KB HOME is 1.43 times more volatile than Warner Music Group. It trades about 0.0 of its total potential returns per unit of risk. Warner Music Group is currently generating about 0.05 per unit of volatility. If you would invest 2,743 in Warner Music Group on September 21, 2024 and sell it today you would earn a total of 290.00 from holding Warner Music Group or generate 10.57% 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. Warner Music Group
Performance |
| Timeline |
| KB HOME |
| Warner Music Group |
KB HOME and Warner Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB HOME and Warner Music
The main advantage of trading using opposite KB HOME and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB HOME position performs unexpectedly, Warner Music 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 Warner Music will offset losses from the drop in Warner Music's long position.The idea behind KB HOME and Warner Music Group 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.| Warner Music vs. The Walt Disney | Warner Music vs. Charter Communications | Warner Music vs. Superior Plus Corp | Warner Music vs. SIVERS SEMICONDUCTORS AB |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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