Correlation Between Toll Brothers and Beazer Homes

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

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

Diversification Opportunities for Toll Brothers and Beazer Homes

0.96

Correlation Coefficient

Toll Brothers  Beazer Homes

Almost no diversification

The 3 months correlation between Toll and Beazer is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Toll Brothers and Beazer Homes USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beazer Homes USA 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 Beazer Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beazer Homes USA has no effect on the direction of Toll Brothers i.e., Toll Brothers and Beazer Homes go up and down completely randomly.

Pair Corralation between Toll Brothers and Beazer Homes

Considering the 90-day investment horizon Toll Brothers is expected to generate 0.83 times more return on investment than Beazer Homes. However, Toll Brothers is 1.2 times less risky than Beazer Homes. It trades about 0.05 of its potential returns per unit of risk. Beazer Homes USA is currently generating about 0.01 per unit of risk. If you would invest  11,174  in Toll Brothers on October 22, 2024 and sell it today you would earn a total of  2,342  from holding Toll Brothers or generate 20.96% return on investment over 90 days.

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

Toll Brothers  vs.  Beazer Homes USA

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 inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Beazer Homes USA

Risk-Adjusted Performance

0 of 100

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 latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Toll Brothers and Beazer Homes

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

The idea behind Toll Brothers and Beazer Homes USA 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.