Correlation Between KB HOME and Algonquin Power

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

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

Diversification Opportunities for KB HOME and Algonquin Power

0.67

Correlation Coefficient

KB HOME  Algonquin Power

Poor diversification

The 3 months correlation between KBH and Algonquin is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of KB HOME i.e., KB HOME and Algonquin Power go up and down completely randomly.

Pair Corralation between KB HOME and Algonquin Power

Assuming the 90 days trading horizon KB HOME is expected to under-perform the Algonquin Power. In addition to that, KB HOME is 1.19 times more volatile than Algonquin Power Utilities. It trades about -0.19 of its total potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.11 per unit of volatility. If you would invest  459.00  in Algonquin Power Utilities on September 27, 2024 and sell it today you would lose (33.00) from holding Algonquin Power Utilities or give up 7.19% of portfolio value over 90 days.

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

KB HOME  vs.  Algonquin Power Utilities

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with KB HOME and Algonquin Power

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

The idea behind KB HOME and Algonquin Power Utilities 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..