Correlation Between KB Home and Charles Schwab

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

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

Diversification Opportunities for KB Home and Charles Schwab

-0.24

Correlation Coefficient

KB Home  Charles Schwab

Very good diversification

The 3 months correlation between KBH and Charles is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and The Charles Schwab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab 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 Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab has no effect on the direction of KB Home i.e., KB Home and Charles Schwab go up and down completely randomly.

Pair Corralation between KB Home and Charles Schwab

Assuming the 90 days trading horizon KB Home is expected to under-perform the Charles Schwab. In addition to that, KB Home is 1.88 times more volatile than The Charles Schwab. It trades about -0.22 of its total potential returns per unit of risk. The Charles Schwab is currently generating about -0.4 per unit of volatility. If you would invest  170,000  in The Charles Schwab on September 27, 2024 and sell it today you would lose (23,000) from holding The Charles Schwab or give up 13.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

KB Home  vs.  The Charles Schwab

KB Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Charles Schwab

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Charles Schwab are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Charles Schwab showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Charles Schwab

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

The idea behind KB Home and The Charles Schwab 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.