Correlation Between TRI Pointe and Clorox

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

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

Diversification Opportunities for TRI Pointe and Clorox

-0.02

Correlation Coefficient

TRI Pointe  Clorox

Good diversification

The 3 months correlation between TRI and Clorox is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding TRI Pointe Homes and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox and TRI Pointe 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 TRI Pointe Homes are associated (or correlated) with Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of TRI Pointe i.e., TRI Pointe and Clorox go up and down completely randomly.

Pair Corralation between TRI Pointe and Clorox

Considering the 90-day investment horizon TRI Pointe is expected to generate 2.27 times less return on investment than Clorox. In addition to that, TRI Pointe is 1.53 times more volatile than The Clorox. It trades about 0.02 of its total potential returns per unit of risk. The Clorox is currently generating about 0.06 per unit of volatility. If you would invest  13,809  in The Clorox on October 7, 2024 and sell it today you would earn a total of  2,480  from holding The Clorox or generate 17.96% return on investment over 90 days.

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

TRI Pointe Homes  vs.  The Clorox

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

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

Clorox

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Clorox are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Clorox is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TRI Pointe and Clorox

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

The idea behind TRI Pointe Homes and The Clorox 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.