Correlation Between KB Home and TRI Pointe
Can any of the company-specific risk be diversified away by investing in both KB Home and TRI Pointe 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 TRI Pointe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and TRI Pointe Homes, you can compare the effects of market volatilities on KB Home and TRI Pointe 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 TRI Pointe. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and TRI Pointe.
Diversification Opportunities for KB Home and TRI Pointe
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between KBH and TRI is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of KB Home i.e., KB Home and TRI Pointe go up and down completely randomly.
Pair Corralation between KB Home and TRI Pointe
Considering the 90-day investment horizon KB Home is expected to generate 1.15 times more return on investment than TRI Pointe. However, KB Home is 1.15 times more volatile than TRI Pointe Homes. It trades about 0.16 of its potential returns per unit of risk. TRI Pointe Homes is currently generating about 0.16 per unit of risk. If you would invest 6,464 in KB Home on November 2, 2024 and sell it today you would earn a total of 412.00 from holding KB Home or generate 6.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
KB Home vs. TRI Pointe Homes
Performance |
| Timeline |
| KB Home |
| TRI Pointe Homes |
KB Home and TRI Pointe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and TRI Pointe
The main advantage of trading using opposite KB Home and TRI Pointe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, TRI Pointe 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 TRI Pointe will offset losses from the drop in TRI Pointe's long position.The idea behind KB Home and TRI Pointe Homes 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.| TRI Pointe vs. MI Homes | TRI Pointe vs. Beazer Homes USA | TRI Pointe vs. Century Communities | TRI Pointe vs. Meritage |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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