Correlation Between Avery Dennison and Hovnanian Enterprises

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

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

Diversification Opportunities for Avery Dennison and Hovnanian Enterprises

-0.33

Correlation Coefficient

Avery Dennison  Hovnanian Enterprises

Very good diversification

The 3 months correlation between Avery and Hovnanian is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Avery Dennison Corp 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 Avery Dennison 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 Avery Dennison Corp 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 Avery Dennison i.e., Avery Dennison and Hovnanian Enterprises go up and down completely randomly.

Pair Corralation between Avery Dennison and Hovnanian Enterprises

Considering the 90-day investment horizon Avery Dennison Corp is expected to under-perform the Hovnanian Enterprises. In addition to that, Avery Dennison is 2.5 times more volatile than Hovnanian Enterprises PFD. It trades about -0.48 of its total potential returns per unit of risk. Hovnanian Enterprises PFD is currently generating about 0.05 per unit of volatility. If you would invest  1,773  in Hovnanian Enterprises PFD on October 1, 2024 and sell it today you would earn a total of  6.00  from holding Hovnanian Enterprises PFD or generate 0.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Avery Dennison Corp  vs.  Hovnanian Enterprises PFD

Avery Dennison Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avery Dennison Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hovnanian Enterprises PFD

Risk-Adjusted Performance

0 of 100

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 current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Avery Dennison and Hovnanian Enterprises

The main advantage of trading using opposite Avery Dennison and Hovnanian Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avery Dennison 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 Avery Dennison Corp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.