Correlation Between BRP and Hovnanian Enterprises

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

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

Diversification Opportunities for BRP and Hovnanian Enterprises

0.8

Correlation Coefficient

BRP  Hovnanian Enterprises

Very poor diversification

The 3 months correlation between BRP and Hovnanian is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and BRP 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 BRP Inc are associated (or correlated) with Hovnanian Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hovnanian Enterprises has no effect on the direction of BRP i.e., BRP and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between BRP and Hovnanian Enterprises

Given the investment horizon of 90 days BRP Inc is expected to under-perform the Hovnanian Enterprises. But the stock apears to be less risky and, when comparing its historical volatility, BRP Inc is 1.19 times less risky than Hovnanian Enterprises. The stock trades about -0.2 of its potential returns per unit of risk. The Hovnanian Enterprises is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  13,395  in Hovnanian Enterprises on December 28, 2024 and sell it today you would lose (2,963) from holding Hovnanian Enterprises or give up 22.12% of portfolio value over 90 days.

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

BRP Inc  vs.  Hovnanian Enterprises

BRP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hovnanian Enterprises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hovnanian Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with BRP and Hovnanian Enterprises

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

The idea behind BRP Inc and Hovnanian Enterprises 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.