Correlation Between Toll Brothers and Hovnanian Enterprises

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

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

Diversification Opportunities for Toll Brothers and Hovnanian Enterprises

0.9

Correlation Coefficient

Toll Brothers  Hovnanian Enterprises

Almost no diversification

The 3 months correlation between Toll and Hovnanian is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Toll Brothers and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and Toll Brothers 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 Toll Brothers 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 Toll Brothers i.e., Toll Brothers and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Toll Brothers and Hovnanian Enterprises

Considering the 90-day investment horizon Toll Brothers is expected to generate 0.57 times more return on investment than Hovnanian Enterprises. However, Toll Brothers is 1.75 times less risky than Hovnanian Enterprises. It trades about 0.05 of its potential returns per unit of risk. Hovnanian Enterprises is currently generating about 0.0 per unit of risk. If you would invest  10,308  in Toll Brothers on October 7, 2024 and sell it today you would earn a total of  2,315  from holding Toll Brothers or generate 22.46% return on investment over 90 days.

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

Toll Brothers  vs.  Hovnanian Enterprises

Toll Brothers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toll Brothers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Toll Brothers and Hovnanian Enterprises

The main advantage of trading using opposite Toll Brothers and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toll Brothers 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 Toll Brothers 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.