Correlation Between Toll Brothers and Barratt Developments

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

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

Diversification Opportunities for Toll Brothers and Barratt Developments

-0.31

Correlation Coefficient

Toll Brothers  Barratt Developments

Very good diversification

The 3 months correlation between Toll and Barratt is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Toll Brothers and Barratt Developments plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barratt Developments plc and Toll Brothers 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 Toll Brothers are associated (or correlated) with Barratt Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barratt Developments plc has no effect on the direction of Toll Brothers i.e., Toll Brothers and Barratt Developments go up and down completely randomly.

Pair Corralation between Toll Brothers and Barratt Developments

Considering the 90-day investment horizon Toll Brothers is expected to under-perform the Barratt Developments. But the stock apears to be less risky and, when comparing its historical volatility, Toll Brothers is 1.15 times less risky than Barratt Developments. The stock trades about -0.1 of its potential returns per unit of risk. The Barratt Developments plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  546.00  in Barratt Developments plc on December 28, 2024 and sell it today you would lose (8.00) from holding Barratt Developments plc or give up 1.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Toll Brothers  vs.  Barratt Developments plc

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.

Barratt Developments plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Barratt Developments plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Barratt Developments is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Toll Brothers and Barratt Developments

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

The idea behind Toll Brothers and Barratt Developments plc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.