Correlation Between KB Home and MI Homes

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

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

Diversification Opportunities for KB Home and MI Homes

0.97

Correlation Coefficient

KB Home  MI Homes

Almost no diversification

The 3 months correlation between KBH and MHO is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of KB Home i.e., KB Home and MI Homes go up and down completely randomly.

Pair Corralation between KB Home and MI Homes

Considering the 90-day investment horizon KB Home is expected to generate 1.52 times less return on investment than MI Homes. In addition to that, KB Home is 1.05 times more volatile than MI Homes. It trades about 0.12 of its total potential returns per unit of risk. MI Homes is currently generating about 0.19 per unit of volatility. If you would invest  11,076  in MI Homes on May 17, 2025 and sell it today you would earn a total of  3,207  from holding MI Homes or generate 28.95% return on investment over 90 days.

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

KB Home  vs.  MI Homes

KB Home

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, KB Home demonstrated solid returns over the last few months and may actually be approaching a breakup point.

MI Homes

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical indicators, MI Homes displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and MI Homes

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

The idea behind KB Home and MI Homes 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.