Correlation Between Pure Storage and Toll Brothers

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

By analyzing existing cross correlation between Pure Storage and Toll Brothers, you can compare the effects of market volatilities on Pure Storage and Toll Brothers 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 Pure Storage with a short position of Toll Brothers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pure Storage and Toll Brothers.

Diversification Opportunities for Pure Storage and Toll Brothers

-0.32

Correlation Coefficient

Pure Storage  Toll Brothers

Very good diversification

The 3 months correlation between Pure and Toll is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Pure Storage and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and Pure Storage 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 Pure Storage are associated (or correlated) with Toll Brothers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toll Brothers has no effect on the direction of Pure Storage i.e., Pure Storage and Toll Brothers go up and down completely randomly.

Pair Corralation between Pure Storage and Toll Brothers

Assuming the 90 days horizon Pure Storage is expected to generate 1.51 times more return on investment than Toll Brothers. However, Pure Storage is 1.51 times more volatile than Toll Brothers. It trades about 0.07 of its potential returns per unit of risk. Toll Brothers is currently generating about 0.1 per unit of risk. If you would invest  2,447  in Pure Storage on October 3, 2024 and sell it today you would earn a total of  3,608  from holding Pure Storage or generate 147.45% return on investment over 90 days.

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

Pure Storage  vs.  Toll Brothers

Pure Storage

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Storage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pure Storage reported solid returns over the last few months and may actually be approaching a breakup point.

Toll Brothers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toll Brothers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Pure Storage and Toll Brothers

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

The idea behind Pure Storage and Toll Brothers 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.