Correlation Between Hovnanian Enterprises and Cavco Industries

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

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

Diversification Opportunities for Hovnanian Enterprises and Cavco Industries

-0.35

Correlation Coefficient

Hovnanian Enterprises  Cavco Industries

Very good diversification

The 3 months correlation between Hovnanian and Cavco is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Hovnanian Enterprises and Cavco Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavco Industries and Hovnanian Enterprises 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 Hovnanian Enterprises are associated (or correlated) with Cavco Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavco Industries has no effect on the direction of Hovnanian Enterprises i.e., Hovnanian Enterprises and Cavco Industries go up and down completely randomly.

Pair Corralation between Hovnanian Enterprises and Cavco Industries

Considering the 90-day investment horizon Hovnanian Enterprises is expected to under-perform the Cavco Industries. In addition to that, Hovnanian Enterprises is 1.82 times more volatile than Cavco Industries. It trades about -0.09 of its total potential returns per unit of risk. Cavco Industries is currently generating about 0.13 per unit of volatility. If you would invest  44,683  in Cavco Industries on December 29, 2024 and sell it today you would earn a total of  6,713  from holding Cavco Industries or generate 15.02% return on investment over 90 days.

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

Hovnanian Enterprises  vs.  Cavco Industries

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.

Cavco Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cavco Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cavco Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hovnanian Enterprises and Cavco Industries

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

The idea behind Hovnanian Enterprises and Cavco Industries 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.