Correlation Between KB HOME and Shin Etsu

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

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

Diversification Opportunities for KB HOME and Shin Etsu

0.05

Correlation Coefficient

KB HOME  Shin Etsu

Significant diversification

The 3 months correlation between KBH and Shin is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding KB HOME and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical 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 Shin Etsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of KB HOME i.e., KB HOME and Shin Etsu go up and down completely randomly.

Pair Corralation between KB HOME and Shin Etsu

Assuming the 90 days trading horizon KB HOME is expected to under-perform the Shin Etsu. But the stock apears to be less risky and, when comparing its historical volatility, KB HOME is 1.0 times less risky than Shin Etsu. The stock trades about -0.12 of its potential returns per unit of risk. The Shin Etsu Chemical Co is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,472  in Shin Etsu Chemical Co on September 13, 2024 and sell it today you would lose (67.00) from holding Shin Etsu Chemical Co or give up 1.93% of portfolio value over 90 days.

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

KB HOME  vs.  Shin Etsu Chemical Co

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 comparatively stable basic indicators, KB HOME is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Shin Etsu Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shin Etsu Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shin Etsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KB HOME and Shin Etsu

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

The idea behind KB HOME and Shin Etsu Chemical Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.