Correlation Between Home Depot and United Airlines
Can any of the company-specific risk be diversified away by investing in both Home Depot and United Airlines 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 United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and United Airlines Holdings, you can compare the effects of market volatilities on Home Depot and United Airlines 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 United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and United Airlines.
Diversification Opportunities for Home Depot and United Airlines
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and United is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Home Depot i.e., Home Depot and United Airlines go up and down completely randomly.
Pair Corralation between Home Depot and United Airlines
Assuming the 90 days trading horizon Home Depot is expected to generate 17.4 times less return on investment than United Airlines. But when comparing it to its historical volatility, Home Depot is 9.71 times less risky than United Airlines. It trades about 0.07 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 4,218 in United Airlines Holdings on September 20, 2024 and sell it today you would earn a total of 5,468 from holding United Airlines Holdings or generate 129.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.23% |
| Values | Daily Returns |
Home Depot vs. United Airlines Holdings
Performance |
| Timeline |
| Home Depot |
| United Airlines Holdings |
Home Depot and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and United Airlines
The main advantage of trading using opposite Home Depot and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, United Airlines 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 United Airlines will offset losses from the drop in United Airlines' long position.| Home Depot vs. Rightmove PLC | Home Depot vs. Bioventix | Home Depot vs. VeriSign | Home Depot vs. Games Workshop Group |
| United Airlines vs. CleanTech Lithium plc | United Airlines vs. OneSavings Bank PLC | United Airlines vs. Home Depot | United Airlines vs. Blackstone Loan Financing |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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