Correlation Between Beazer Homes and Toll Brothers

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

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

Diversification Opportunities for Beazer Homes and Toll Brothers

0.72

Correlation Coefficient

Beazer Homes  Toll Brothers

Poor diversification

The 3 months correlation between Beazer and Toll is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Beazer Homes USA and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and Beazer Homes 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 Beazer Homes USA 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 Beazer Homes i.e., Beazer Homes and Toll Brothers go up and down completely randomly.

Pair Corralation between Beazer Homes and Toll Brothers

Considering the 90-day investment horizon Beazer Homes USA is expected to under-perform the Toll Brothers. In addition to that, Beazer Homes is 1.68 times more volatile than Toll Brothers. It trades about -0.1 of its total potential returns per unit of risk. Toll Brothers is currently generating about -0.1 per unit of volatility. If you would invest  12,621  in Toll Brothers on December 27, 2024 and sell it today you would lose (1,740) from holding Toll Brothers or give up 13.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Beazer Homes USA  vs.  Toll Brothers

Beazer Homes USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beazer Homes USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Toll Brothers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toll Brothers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Beazer Homes and Toll Brothers

The main advantage of trading using opposite Beazer Homes and Toll Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beazer Homes 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 Beazer Homes USA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.