Correlation Between Cisco Systems and KB HOME

Can any of the company-specific risk be diversified away by investing in both Cisco Systems 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 Cisco Systems and KB HOME into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cisco Systems and KB HOME, you can compare the effects of market volatilities on Cisco Systems 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 Cisco Systems with a short position of KB HOME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and KB HOME.

Diversification Opportunities for Cisco Systems and KB HOME

0.2

Correlation Coefficient

Cisco Systems  KB HOME

Modest diversification

The 3 months correlation between Cisco and KBH is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems and KB HOME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB HOME and Cisco Systems 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 Cisco Systems 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 Cisco Systems i.e., Cisco Systems and KB HOME go up and down completely randomly.

Pair Corralation between Cisco Systems and KB HOME

Assuming the 90 days trading horizon Cisco Systems is expected to generate 0.49 times more return on investment than KB HOME. However, Cisco Systems is 2.05 times less risky than KB HOME. It trades about 0.33 of its potential returns per unit of risk. KB HOME is currently generating about 0.06 per unit of risk. If you would invest  4,498  in Cisco Systems on September 3, 2024 and sell it today you would earn a total of  1,141  from holding Cisco Systems or generate 25.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cisco Systems  vs.  KB HOME

Cisco Systems

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cisco Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

KB HOME

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KB HOME are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, KB HOME may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cisco Systems and KB HOME

The main advantage of trading using opposite Cisco Systems and KB HOME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems 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.

The idea behind Cisco Systems and KB HOME 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.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.