Correlation Between Hovnanian Enterprises and MDC Holdings

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

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

Diversification Opportunities for Hovnanian Enterprises and MDC Holdings

-0.55

Correlation Coefficient

Hovnanian Enterprises  MDC Holdings

Excellent diversification

The 3 months correlation between Hovnanian and MDC is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Hovnanian Enterprises and MDC Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDC Holdings 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 MDC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDC Holdings has no effect on the direction of Hovnanian Enterprises i.e., Hovnanian Enterprises and MDC Holdings go up and down completely randomly.

Pair Corralation between Hovnanian Enterprises and MDC Holdings

If you would invest  18,021  in Hovnanian Enterprises on September 4, 2024 and sell it today you would earn a total of  1,653  from holding Hovnanian Enterprises or generate 9.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

Hovnanian Enterprises  vs.  MDC Holdings

Hovnanian Enterprises

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hovnanian Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Hovnanian Enterprises may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MDC Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MDC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hovnanian Enterprises and MDC Holdings

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

The idea behind Hovnanian Enterprises and MDC Holdings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.