Correlation Between MDC Holdings and Hovnanian Enterprises

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

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

Diversification Opportunities for MDC Holdings and Hovnanian Enterprises

-0.02

Correlation Coefficient

MDC Holdings  Hovnanian Enterprises

Good diversification

The 3 months correlation between MDC and Hovnanian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and MDC Holdings 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 MDC Holdings 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 MDC Holdings i.e., MDC Holdings and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between MDC Holdings and Hovnanian Enterprises

Considering the 90-day investment horizon MDC Holdings is expected to generate 1.36 times less return on investment than Hovnanian Enterprises. But when comparing it to its historical volatility, MDC Holdings is 2.07 times less risky than Hovnanian Enterprises. It trades about 0.15 of its potential returns per unit of risk. Hovnanian Enterprises is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,760  in Hovnanian Enterprises on July 30, 2024 and sell it today you would earn a total of  13,649  from holding Hovnanian Enterprises or generate 363.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	35.76%
Values	Daily Returns

MDC Holdings  vs.  Hovnanian Enterprises

MDC Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MDC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 November 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with MDC Holdings and Hovnanian Enterprises

The main advantage of trading using opposite MDC Holdings and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MDC Holdings 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 MDC Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.