Correlation Between KB Home and NVR
Can any of the company-specific risk be diversified away by investing in both KB Home and NVR 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 NVR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KB Home and NVR Inc, you can compare the effects of market volatilities on KB Home and NVR 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 NVR. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and NVR.
Diversification Opportunities for KB Home and NVR
Very poor diversification
The 3 months correlation between KBH and NVR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR Inc 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 NVR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVR Inc has no effect on the direction of KB Home i.e., KB Home and NVR go up and down completely randomly.
Pair Corralation between KB Home and NVR
Considering the 90-day investment horizon KB Home is expected to under-perform the NVR. In addition to that, KB Home is 1.28 times more volatile than NVR Inc. It trades about -0.37 of its total potential returns per unit of risk. NVR Inc is currently generating about -0.11 per unit of volatility. If you would invest 795,845 in NVR Inc on January 20, 2024 and sell it today you would lose (27,345) from holding NVR Inc or give up 3.44% 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. NVR Inc
Performance |
| Timeline |
| KB Home |
| NVR Inc |
KB Home and NVR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KB Home and NVR
The main advantage of trading using opposite KB Home and NVR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, NVR 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 NVR will offset losses from the drop in NVR's long position.The idea behind KB Home and NVR Inc 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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