Correlation Between KB Home and Cleveland Cliffs

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

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

Diversification Opportunities for KB Home and Cleveland Cliffs

0.12

Correlation Coefficient

KB Home  Cleveland Cliffs

Average diversification

The 3 months correlation between KBH and Cleveland is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs 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 Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of KB Home i.e., KB Home and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between KB Home and Cleveland Cliffs

Assuming the 90 days trading horizon KB Home is not expected to generate positive returns. However, KB Home is 624.34 times less risky than Cleveland Cliffs. It waists most of its returns potential to compensate for thr risk taken. Cleveland Cliffs is generating about -0.11 per unit of risk. If you would invest  105,500  in KB Home on March 8, 2024 and sell it today you would earn a total of  0.00  from holding KB Home or generate 0.0% return on investment over 90 days.

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

KB Home  vs.  Cleveland Cliffs

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 fairly strong technical indicators, KB Home is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs 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 and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with KB Home and Cleveland Cliffs

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

The idea behind KB Home and Cleveland Cliffs 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.