Correlation Between Legacy Housing and Hovnanian Enterprises

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

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

Diversification Opportunities for Legacy Housing and Hovnanian Enterprises

0.09

Correlation Coefficient

Legacy Housing  Hovnanian Enterprises

Significant diversification

The 3 months correlation between Legacy and Hovnanian is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Housing Corp and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and Legacy Housing 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 Legacy Housing Corp 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 Legacy Housing i.e., Legacy Housing and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Legacy Housing and Hovnanian Enterprises

Given the investment horizon of 90 days Legacy Housing Corp is expected to generate 0.53 times more return on investment than Hovnanian Enterprises. However, Legacy Housing Corp is 1.88 times less risky than Hovnanian Enterprises. It trades about 0.03 of its potential returns per unit of risk. Hovnanian Enterprises is currently generating about -0.09 per unit of risk. If you would invest  2,443  in Legacy Housing Corp on December 29, 2024 and sell it today you would earn a total of  70.00  from holding Legacy Housing Corp or generate 2.87% return on investment over 90 days.

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

Legacy Housing Corp  vs.  Hovnanian Enterprises

Legacy Housing Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Housing Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Legacy Housing is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 Legacy Housing and Hovnanian Enterprises

The main advantage of trading using opposite Legacy Housing and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legacy Housing 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 Legacy Housing Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.