Correlation Between Hovnanian Enterprises and PulteGroup

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

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

Diversification Opportunities for Hovnanian Enterprises and PulteGroup

0.65

Correlation Coefficient

Hovnanian Enterprises  PulteGroup

Poor diversification

The 3 months correlation between Hovnanian and PulteGroup is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hovnanian Enterprises and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup 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 PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Hovnanian Enterprises i.e., Hovnanian Enterprises and PulteGroup go up and down completely randomly.

Pair Corralation between Hovnanian Enterprises and PulteGroup

Considering the 90-day investment horizon Hovnanian Enterprises is expected to generate 1.44 times more return on investment than PulteGroup. However, Hovnanian Enterprises is 1.44 times more volatile than PulteGroup. It trades about 0.19 of its potential returns per unit of risk. PulteGroup is currently generating about 0.13 per unit of risk. If you would invest  17,700  in Hovnanian Enterprises on September 2, 2024 and sell it today you would earn a total of  1,961  from holding Hovnanian Enterprises or generate 11.08% return on investment over 90 days.

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

Hovnanian Enterprises  vs.  PulteGroup

Hovnanian Enterprises

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, Hovnanian Enterprises is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

PulteGroup

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PulteGroup are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, PulteGroup is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Hovnanian Enterprises and PulteGroup

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

The idea behind Hovnanian Enterprises and PulteGroup 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.