Correlation Between KB Home and Meritage

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

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

Diversification Opportunities for KB Home and Meritage

0.9

Correlation Coefficient

KB Home  Meritage

Almost no diversification

The 3 months correlation between KBH and Meritage is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage 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 Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of KB Home i.e., KB Home and Meritage go up and down completely randomly.

Pair Corralation between KB Home and Meritage

Considering the 90-day investment horizon KB Home is expected to generate 0.93 times more return on investment than Meritage. However, KB Home is 1.07 times less risky than Meritage. It trades about 0.12 of its potential returns per unit of risk. Meritage is currently generating about 0.11 per unit of risk. If you would invest  5,298  in KB Home on May 20, 2025 and sell it today you would earn a total of  990.00  from holding KB Home or generate 18.69% 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.  Meritage

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.

Meritage

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Meritage demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Meritage

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

The idea behind KB Home and Meritage 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.