Correlation Between KB Home and Ford

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

By analyzing existing cross correlation between KB Home and Ford Motor, you can compare the effects of market volatilities on KB Home and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and Ford.

Diversification Opportunities for KB Home and Ford

0.13

Correlation Coefficient

KB Home  Ford

Average diversification

The 3 months correlation between KBH and Ford is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of KB Home i.e., KB Home and Ford go up and down completely randomly.

Pair Corralation between KB Home and Ford

Assuming the 90 days trading horizon KB Home is expected to generate 1.64 times more return on investment than Ford. However, KB Home is 1.64 times more volatile than Ford Motor. It trades about 0.09 of its potential returns per unit of risk. Ford Motor is currently generating about 0.04 per unit of risk. If you would invest  135,985  in KB Home on September 2, 2024 and sell it today you would earn a total of  20,715  from holding KB Home or generate 15.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

KB Home  vs.  Ford Motor

KB Home

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, KB Home showed solid returns over the last few months and may actually be approaching a breakup point.

Ford Motor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Ford is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KB Home and Ford

The main advantage of trading using opposite KB Home and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.

The idea behind KB Home and Ford Motor 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..