Correlation Between KB Home and Microsoft

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

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

Diversification Opportunities for KB Home and Microsoft

0.86

Correlation Coefficient

KB Home  Microsoft

Very poor diversification

The 3 months correlation between KBH and Microsoft is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of KB Home i.e., KB Home and Microsoft go up and down completely randomly.

Pair Corralation between KB Home and Microsoft

Assuming the 90 days trading horizon KB Home is expected to generate 80.2 times less return on investment than Microsoft. But when comparing it to its historical volatility, KB Home is 34.28 times less risky than Microsoft. It trades about 0.13 of its potential returns per unit of risk. Microsoft is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  706,146  in Microsoft on April 20, 2025 and sell it today you would earn a total of  246,720  from holding Microsoft or generate 34.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

KB Home  vs.  Microsoft

KB Home

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, KB Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Microsoft showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Microsoft

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

The idea behind KB Home and Microsoft 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..