Correlation Between UNITED RENTALS and KB HOME
Can any of the company-specific risk be diversified away by investing in both UNITED RENTALS and KB HOME 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 UNITED RENTALS and KB HOME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between UNITED RENTALS and KB HOME, you can compare the effects of market volatilities on UNITED RENTALS and KB HOME 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 UNITED RENTALS with a short position of KB HOME. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNITED RENTALS and KB HOME.
Diversification Opportunities for UNITED RENTALS and KB HOME
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between UNITED and KBH is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and KB HOME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB HOME and UNITED RENTALS 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 UNITED RENTALS are associated (or correlated) with KB HOME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB HOME has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and KB HOME go up and down completely randomly.
Pair Corralation between UNITED RENTALS and KB HOME
Assuming the 90 days trading horizon UNITED RENTALS is expected to generate 1.05 times more return on investment than KB HOME. However, UNITED RENTALS is 1.05 times more volatile than KB HOME. It trades about -0.02 of its potential returns per unit of risk. KB HOME is currently generating about -0.14 per unit of risk. If you would invest 71,397 in UNITED RENTALS on September 27, 2024 and sell it today you would lose (2,317) from holding UNITED RENTALS or give up 3.25% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
UNITED RENTALS vs. KB HOME
Performance |
Timeline |
UNITED RENTALS |
KB HOME |
UNITED RENTALS and KB HOME Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with UNITED RENTALS and KB HOME
The main advantage of trading using opposite UNITED RENTALS and KB HOME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNITED RENTALS position performs unexpectedly, KB HOME 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 KB HOME will offset losses from the drop in KB HOME's long position.The idea behind UNITED RENTALS and KB HOME 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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