Correlation Between BRP and Toll Brothers

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

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

Diversification Opportunities for BRP and Toll Brothers

0.85

Correlation Coefficient

BRP  Toll Brothers

Very poor diversification

The 3 months correlation between BRP and Toll is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and BRP 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 BRP Inc 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 BRP i.e., BRP and Toll Brothers go up and down completely randomly.

Pair Corralation between BRP and Toll Brothers

Given the investment horizon of 90 days BRP Inc is expected to under-perform the Toll Brothers. In addition to that, BRP is 1.31 times more volatile than Toll Brothers. It trades about -0.15 of its total potential returns per unit of risk. Toll Brothers is currently generating about -0.11 per unit of volatility. If you would invest  12,799  in Toll Brothers on December 26, 2024 and sell it today you would lose (1,901) from holding Toll Brothers or give up 14.85% of portfolio value over 90 days.

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

BRP Inc  vs.  Toll Brothers

BRP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 BRP and Toll Brothers

The main advantage of trading using opposite BRP and Toll Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP 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 BRP Inc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.