Correlation Between Microsoft and Toll Brothers
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Toll Brothers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Toll Brothers, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Toll Brothers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Toll Brothers.
Diversification Opportunities for Microsoft and Toll Brothers
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Toll is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Toll Brothers go up and down completely randomly.
Pair Corralation between Microsoft and Toll Brothers
Given the investment horizon of 90 days Microsoft is expected to under-perform the Toll Brothers. In addition to that, Microsoft is 1.02 times more volatile than Toll Brothers. It trades about -0.06 of its total potential returns per unit of risk. Toll Brothers is currently generating about 0.11 per unit of volatility. If you would invest 14,695 in Toll Brothers on August 24, 2024 and sell it today you would earn a total of 541.00 from holding Toll Brothers or generate 3.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Toll Brothers
Performance |
| Timeline |
| Microsoft |
| Toll Brothers |
Microsoft and Toll Brothers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Toll Brothers
The main advantage of trading using opposite Microsoft and Toll Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Toll Brothers vs. DR Horton | Toll Brothers vs. Lennar | Toll Brothers vs. KB Home | Toll Brothers vs. NVR Inc |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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