Correlation Between KB Home and Toll Brothers

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

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

Diversification Opportunities for KB Home and Toll Brothers

0.63

Correlation Coefficient

KB Home  Toll Brothers

Poor diversification

The 3 months correlation between KBH and Toll is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers and KB Home 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 KB Home 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 KB Home i.e., KB Home and Toll Brothers go up and down completely randomly.

Pair Corralation between KB Home and Toll Brothers

Considering the 90-day investment horizon KB Home is expected to generate 2.92 times less return on investment than Toll Brothers. In addition to that, KB Home is 1.1 times more volatile than Toll Brothers. It trades about 0.05 of its total potential returns per unit of risk. Toll Brothers is currently generating about 0.16 per unit of volatility. If you would invest  9,988  in Toll Brothers on April 25, 2025 and sell it today you would earn a total of  2,257  from holding Toll Brothers or generate 22.6% return on investment over 90 days.

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

KB Home  vs.  Toll Brothers

KB Home

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KB Home are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, KB Home may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Toll Brothers

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toll Brothers are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Toll Brothers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Home and Toll Brothers

The main advantage of trading using opposite KB Home and Toll Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home 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 KB Home 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.