Correlation Between Hanesbrands and NVR

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

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

Diversification Opportunities for Hanesbrands and NVR

-0.65

Correlation Coefficient

Hanesbrands  NVR

Excellent diversification

The 3 months correlation between Hanesbrands and NVR is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hanesbrands and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR Inc and Hanesbrands 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 Hanesbrands are associated (or correlated) with NVR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVR Inc has no effect on the direction of Hanesbrands i.e., Hanesbrands and NVR go up and down completely randomly.

Pair Corralation between Hanesbrands and NVR

Considering the 90-day investment horizon Hanesbrands is expected to generate 1.25 times more return on investment than NVR. However, Hanesbrands is 1.25 times more volatile than NVR Inc. It trades about -0.08 of its potential returns per unit of risk. NVR Inc is currently generating about -0.26 per unit of risk. If you would invest  854.00  in Hanesbrands on September 23, 2024 and sell it today you would lose (31.00) from holding Hanesbrands or give up 3.63% of portfolio value over 90 days.

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

Hanesbrands  vs.  NVR Inc

Hanesbrands

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanesbrands are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental drivers, Hanesbrands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NVR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Hanesbrands and NVR

The main advantage of trading using opposite Hanesbrands and NVR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hanesbrands position performs unexpectedly, NVR 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 NVR will offset losses from the drop in NVR's long position.

The idea behind Hanesbrands and NVR Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.