Correlation Between PulteGroup and Toll Brothers

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

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

Diversification Opportunities for PulteGroup and Toll Brothers

0.58

Correlation Coefficient

PulteGroup  Toll Brothers

Very weak diversification

The 3 months correlation between PulteGroup and Toll is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding PulteGroup and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and PulteGroup 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 PulteGroup 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 PulteGroup i.e., PulteGroup and Toll Brothers go up and down completely randomly.

Pair Corralation between PulteGroup and Toll Brothers

Assuming the 90 days horizon PulteGroup is expected to generate 0.71 times more return on investment than Toll Brothers. However, PulteGroup is 1.42 times less risky than Toll Brothers. It trades about -0.67 of its potential returns per unit of risk. Toll Brothers is currently generating about -0.62 per unit of risk. If you would invest  12,977  in PulteGroup on September 24, 2024 and sell it today you would lose (2,521) from holding PulteGroup or give up 19.43% of portfolio value over 90 days.

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

PulteGroup  vs.  Toll Brothers

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PulteGroup and Toll Brothers

The main advantage of trading using opposite PulteGroup and Toll Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PulteGroup 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 PulteGroup 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.