Correlation Between Hovnanian Enterprises and DR Horton

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

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

Diversification Opportunities for Hovnanian Enterprises and DR Horton

0.94

Correlation Coefficient

Hovnanian Enterprises  DR Horton

Almost no diversification

The 3 months correlation between Hovnanian and DHI is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Hovnanian Enterprises and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Hovnanian Enterprises i.e., Hovnanian Enterprises and DR Horton go up and down completely randomly.

Pair Corralation between Hovnanian Enterprises and DR Horton

Considering the 90-day investment horizon Hovnanian Enterprises is expected to under-perform the DR Horton. In addition to that, Hovnanian Enterprises is 1.83 times more volatile than DR Horton. It trades about -0.28 of its total potential returns per unit of risk. DR Horton is currently generating about -0.21 per unit of volatility. If you would invest  16,828  in DR Horton on November 28, 2024 and sell it today you would lose (3,617) from holding DR Horton or give up 21.49% of portfolio value over 90 days.

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

Hovnanian Enterprises  vs.  DR Horton

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 March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

DR Horton

Risk-Adjusted Performance

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Hovnanian Enterprises and DR Horton

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

The idea behind Hovnanian Enterprises and DR Horton 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.