Correlation Between KB Home and Lennar

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

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

Diversification Opportunities for KB Home and Lennar

0.82

Correlation Coefficient

KB Home  Lennar

Very poor diversification

The 3 months correlation between KBH and Lennar is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of KB Home i.e., KB Home and Lennar go up and down completely randomly.

Pair Corralation between KB Home and Lennar

Considering the 90-day investment horizon KB Home is expected to generate 1.14 times more return on investment than Lennar. However, KB Home is 1.14 times more volatile than Lennar. It trades about 0.01 of its potential returns per unit of risk. Lennar is currently generating about -0.02 per unit of risk. If you would invest  8,344  in KB Home on August 30, 2024 and sell it today you would lose (58.00) from holding KB Home or give up 0.7% of portfolio value over 90 days.

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

KB Home  vs.  Lennar

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. Despite fairly strong fundamental drivers, KB Home is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Lennar is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with KB Home and Lennar

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

The idea behind KB Home and Lennar 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.