Correlation Between Visa and Hovnanian Enterprises

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

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

Diversification Opportunities for Visa and Hovnanian Enterprises

-0.27

Correlation Coefficient

Visa  Hovnanian Enterprises

Very good diversification

The 3 months correlation between Visa and Hovnanian is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Hovnanian Enterprises PFD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises PFD and Visa 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 Visa Class A 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 PFD has no effect on the direction of Visa i.e., Visa and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Visa and Hovnanian Enterprises

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.77 times more return on investment than Hovnanian Enterprises. However, Visa is 1.77 times more volatile than Hovnanian Enterprises PFD. It trades about 0.17 of its potential returns per unit of risk. Hovnanian Enterprises PFD is currently generating about -0.01 per unit of risk. If you would invest  31,478  in Visa Class A on December 28, 2024 and sell it today you would earn a total of  3,508  from holding Visa Class A or generate 11.14% return on investment over 90 days.

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

Visa Class A  vs.  Hovnanian Enterprises PFD

Visa Class A

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hovnanian Enterprises PFD

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hovnanian Enterprises PFD has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Hovnanian Enterprises is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Visa and Hovnanian Enterprises

The main advantage of trading using opposite Visa and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A and Hovnanian Enterprises PFD 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.