Correlation Between Ree Automotive and Hovnanian Enterprises

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

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

Diversification Opportunities for Ree Automotive and Hovnanian Enterprises

0.77

Correlation Coefficient

Ree Automotive  Hovnanian Enterprises

Poor diversification

The 3 months correlation between Ree and Hovnanian is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ree Automotive Holding and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and Ree Automotive 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 Ree Automotive Holding 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 Ree Automotive i.e., Ree Automotive and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Ree Automotive and Hovnanian Enterprises

Considering the 90-day investment horizon Ree Automotive Holding is expected to under-perform the Hovnanian Enterprises. In addition to that, Ree Automotive is 1.83 times more volatile than Hovnanian Enterprises. It trades about -0.28 of its total potential returns per unit of risk. Hovnanian Enterprises is currently generating about -0.09 per unit of volatility. If you would invest  13,395  in Hovnanian Enterprises on December 29, 2024 and sell it today you would lose (2,683) from holding Hovnanian Enterprises or give up 20.03% of portfolio value over 90 days.

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

Ree Automotive Holding  vs.  Hovnanian Enterprises

Ree Automotive Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ree Automotive Holding 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Ree Automotive and Hovnanian Enterprises

The main advantage of trading using opposite Ree Automotive and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ree Automotive 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 Ree Automotive Holding 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.