Correlation Between TRI Pointe and KB Home

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

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

Diversification Opportunities for TRI Pointe and KB Home

0.81

Correlation Coefficient

TRI Pointe  KB Home

Very poor diversification

The 3 months correlation between TRI and KBH is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding TRI Pointe Homes and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home and TRI Pointe 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 TRI Pointe Homes 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 TRI Pointe i.e., TRI Pointe and KB Home go up and down completely randomly.

Pair Corralation between TRI Pointe and KB Home

Considering the 90-day investment horizon TRI Pointe is expected to generate 1.16 times less return on investment than KB Home. But when comparing it to its historical volatility, TRI Pointe Homes is 1.03 times less risky than KB Home. It trades about 0.1 of its potential returns per unit of risk. KB Home is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,731  in KB Home on July 30, 2024 and sell it today you would earn a total of  5,074  from holding KB Home or generate 185.79% return on investment over 90 days.

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

TRI Pointe Homes  vs.  KB Home

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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. Despite latest inconsistent performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with TRI Pointe and KB Home

The main advantage of trading using opposite TRI Pointe and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRI Pointe 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 TRI Pointe Homes 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.