Correlation Between NVR and H2O Retailing

Can any of the company-specific risk be diversified away by investing in both NVR and H2O Retailing 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 NVR and H2O Retailing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NVR Inc and H2O Retailing, you can compare the effects of market volatilities on NVR and H2O Retailing 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 NVR with a short position of H2O Retailing. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVR and H2O Retailing.

Diversification Opportunities for NVR and H2O Retailing

-0.43

Correlation Coefficient

NVR  H2O Retailing

Very good diversification

The 3 months correlation between NVR and H2O is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and H2O Retailing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on H2O Retailing and NVR 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 NVR Inc are associated (or correlated) with H2O Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of H2O Retailing has no effect on the direction of NVR i.e., NVR and H2O Retailing go up and down completely randomly.

Pair Corralation between NVR and H2O Retailing

Assuming the 90 days horizon NVR Inc is expected to under-perform the H2O Retailing. But the stock apears to be less risky and, when comparing its historical volatility, NVR Inc is 1.07 times less risky than H2O Retailing. The stock trades about -0.13 of its potential returns per unit of risk. The H2O Retailing is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,220  in H2O Retailing on October 6, 2024 and sell it today you would earn a total of  190.00  from holding H2O Retailing or generate 15.57% return on investment over 90 days.

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

NVR Inc  vs.  H2O Retailing

NVR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

H2O Retailing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in H2O Retailing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, H2O Retailing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NVR and H2O Retailing

The main advantage of trading using opposite NVR and H2O Retailing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVR position performs unexpectedly, H2O Retailing 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 H2O Retailing will offset losses from the drop in H2O Retailing's long position.

The idea behind NVR Inc and H2O Retailing 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.