Correlation Between Martin Marietta and KB Home
Can any of the company-specific risk be diversified away by investing in both Martin Marietta and KB Home 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 Martin Marietta and KB Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Martin Marietta Materials and KB Home, you can compare the effects of market volatilities on Martin Marietta and KB Home 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 Martin Marietta with a short position of KB Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Martin Marietta and KB Home.
Diversification Opportunities for Martin Marietta and KB Home
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Martin and KBH is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and Martin Marietta 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 Martin Marietta Materials are associated (or correlated) with KB Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Home has no effect on the direction of Martin Marietta i.e., Martin Marietta and KB Home go up and down completely randomly.
Pair Corralation between Martin Marietta and KB Home
Assuming the 90 days trading horizon Martin Marietta is expected to generate 2.14 times less return on investment than KB Home. But when comparing it to its historical volatility, Martin Marietta Materials is 1.42 times less risky than KB Home. It trades about 0.08 of its potential returns per unit of risk. KB Home is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 104,810 in KB Home on August 30, 2024 and sell it today you would earn a total of 51,890 from holding KB Home or generate 49.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Martin Marietta Materials vs. KB Home
Performance |
| Timeline |
| Martin Marietta Materials |
| KB Home |
Martin Marietta and KB Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Martin Marietta and KB Home
The main advantage of trading using opposite Martin Marietta and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta position performs unexpectedly, KB Home 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 KB Home will offset losses from the drop in KB Home's long position.| Martin Marietta vs. CEMEX SAB de | Martin Marietta vs. Grupo Cementos de | Martin Marietta vs. Grupo Lamosa SAB |
| KB Home vs. Lennar | KB Home vs. PulteGroup | KB Home vs. Servicios Corporativos Javer | KB Home vs. Desarrolladora Homex 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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