Correlation Between Home Depot and British American
Can any of the company-specific risk be diversified away by investing in both Home Depot and British American 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 Home Depot and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and British American Tobacco, you can compare the effects of market volatilities on Home Depot and British American 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 Home Depot with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and British American.
Diversification Opportunities for Home Depot and British American
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Home and British is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and Home Depot 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 Home Depot are associated (or correlated) with British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Home Depot i.e., Home Depot and British American go up and down completely randomly.
Pair Corralation between Home Depot and British American
Assuming the 90 days trading horizon Home Depot is expected to generate 2.56 times less return on investment than British American. But when comparing it to its historical volatility, Home Depot is 15.65 times less risky than British American. It trades about 0.11 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 3,509 in British American Tobacco on August 27, 2024 and sell it today you would earn a total of 203.00 from holding British American Tobacco or generate 5.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.59% |
| Values | Daily Returns |
Home Depot vs. British American Tobacco
Performance |
| Timeline |
| Home Depot |
| British American Tobacco |
Home Depot and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and British American
The main advantage of trading using opposite Home Depot and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| Home Depot vs. Broadridge Financial Solutions | Home Depot vs. Oakley Capital Investments | Home Depot vs. Bankers Investment Trust | Home Depot vs. EVS Broadcast Equipment |
| British American vs. Pets at Home | British American vs. Home Depot | British American vs. Southwest Airlines Co | British American vs. Orient Telecoms |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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