Correlation Between Toll Brothers and Sekisui House

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

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

Diversification Opportunities for Toll Brothers and Sekisui House

0.61

Correlation Coefficient

Toll Brothers  Sekisui House

Poor diversification

The 3 months correlation between Toll and Sekisui is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Toll Brothers and Sekisui House Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sekisui House 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 Sekisui House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sekisui House has no effect on the direction of Toll Brothers i.e., Toll Brothers and Sekisui House go up and down completely randomly.

Pair Corralation between Toll Brothers and Sekisui House

Considering the 90-day investment horizon Toll Brothers is expected to under-perform the Sekisui House. In addition to that, Toll Brothers is 1.74 times more volatile than Sekisui House Ltd. It trades about -0.1 of its total potential returns per unit of risk. Sekisui House Ltd is currently generating about -0.07 per unit of volatility. If you would invest  2,395  in Sekisui House Ltd on December 28, 2024 and sell it today you would lose (129.00) from holding Sekisui House Ltd or give up 5.39% of portfolio value over 90 days.

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

Toll Brothers  vs.  Sekisui House Ltd

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.

Sekisui House

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sekisui House Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Sekisui House is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Toll Brothers and Sekisui House

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

The idea behind Toll Brothers and Sekisui House Ltd 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.