Correlation Between Toll Brothers and Lennar
Can any of the company-specific risk be diversified away by investing in both Toll Brothers and Lennar 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 Lennar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toll Brothers and Lennar, you can compare the effects of market volatilities on Toll Brothers and Lennar 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 Lennar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toll Brothers and Lennar.
Diversification Opportunities for Toll Brothers and Lennar
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Toll and Lennar is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Toll Brothers and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Toll Brothers i.e., Toll Brothers and Lennar go up and down completely randomly.
Pair Corralation between Toll Brothers and Lennar
Assuming the 90 days horizon Toll Brothers is expected to generate 1.24 times more return on investment than Lennar. However, Toll Brothers is 1.24 times more volatile than Lennar. It trades about 0.09 of its potential returns per unit of risk. Lennar is currently generating about 0.04 per unit of risk. If you would invest 9,314 in Toll Brothers on September 12, 2024 and sell it today you would earn a total of 5,216 from holding Toll Brothers or generate 56.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toll Brothers vs. Lennar
Performance |
| Timeline |
| Toll Brothers |
| Lennar |
Toll Brothers and Lennar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toll Brothers and Lennar
The main advantage of trading using opposite Toll Brothers and Lennar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toll Brothers position performs unexpectedly, Lennar 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 Lennar will offset losses from the drop in Lennar's long position.| Toll Brothers vs. Lennar | Toll Brothers vs. Sekisui Chemical Co | Toll Brothers vs. Superior Plus Corp | Toll Brothers vs. SIVERS SEMICONDUCTORS AB |
| Lennar vs. Sekisui Chemical Co | Lennar vs. Superior Plus Corp | Lennar vs. SIVERS SEMICONDUCTORS AB | Lennar vs. NorAm Drilling AS |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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