Correlation Between CNH Industrial and Home Depot
Can any of the company-specific risk be diversified away by investing in both CNH Industrial and Home Depot 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 CNH Industrial and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CNH Industrial NV and Home Depot, you can compare the effects of market volatilities on CNH Industrial and Home Depot 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 CNH Industrial with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNH Industrial and Home Depot.
Diversification Opportunities for CNH Industrial and Home Depot
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CNH and Home is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and CNH Industrial 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 CNH Industrial NV are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of CNH Industrial i.e., CNH Industrial and Home Depot go up and down completely randomly.
Pair Corralation between CNH Industrial and Home Depot
Assuming the 90 days trading horizon CNH Industrial NV is expected to generate 10.73 times more return on investment than Home Depot. However, CNH Industrial is 10.73 times more volatile than Home Depot. It trades about 0.02 of its potential returns per unit of risk. Home Depot is currently generating about 0.08 per unit of risk. If you would invest 1,052 in CNH Industrial NV on September 3, 2024 and sell it today you would earn a total of 3.00 from holding CNH Industrial NV or generate 0.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.32% |
| Values | Daily Returns |
CNH Industrial NV vs. Home Depot
Performance |
| Timeline |
| CNH Industrial NV |
| Home Depot |
CNH Industrial and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CNH Industrial and Home Depot
The main advantage of trading using opposite CNH Industrial and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| CNH Industrial vs. Catalyst Media Group | CNH Industrial vs. CATLIN GROUP | CNH Industrial vs. Magnora ASA | CNH Industrial vs. RTW Venture Fund |
| Home Depot vs. Toyota Motor Corp | Home Depot vs. SoftBank Group Corp | Home Depot vs. OTP Bank Nyrt | Home Depot vs. Las Vegas Sands |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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