Correlation Between Delta Apparel and Hovnanian Enterprises

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

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

Diversification Opportunities for Delta Apparel and Hovnanian Enterprises

-0.27

Correlation Coefficient

Delta Apparel  Hovnanian Enterprises

Very good diversification

The 3 months correlation between Delta and Hovnanian is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Delta Apparel and Hovnanian Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hovnanian Enterprises and Delta Apparel 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 Delta Apparel 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 Delta Apparel i.e., Delta Apparel and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Delta Apparel and Hovnanian Enterprises

Considering the 90-day investment horizon Delta Apparel is expected to under-perform the Hovnanian Enterprises. In addition to that, Delta Apparel is 2.08 times more volatile than Hovnanian Enterprises. It trades about -0.39 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  15,782  in Hovnanian Enterprises on March 4, 2024 and sell it today you would lose (1,404) from holding Hovnanian Enterprises or give up 8.9% of portfolio value over 90 days.

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

Delta Apparel  vs.  Hovnanian Enterprises

Delta Apparel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Delta Apparel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company 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 fairly stable basic indicators, Hovnanian Enterprises is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Delta Apparel and Hovnanian Enterprises

The main advantage of trading using opposite Delta Apparel and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Apparel 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 Delta Apparel 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.