Correlation Between Home Depot and BYD
Can any of the company-specific risk be diversified away by investing in both Home Depot and BYD 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 BYD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and BYD Co, you can compare the effects of market volatilities on Home Depot and BYD 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 BYD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and BYD.
Diversification Opportunities for Home Depot and BYD
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and BYD is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and BYD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co 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 BYD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Home Depot i.e., Home Depot and BYD go up and down completely randomly.
Pair Corralation between Home Depot and BYD
Assuming the 90 days trading horizon Home Depot is expected to generate 8.7 times less return on investment than BYD. But when comparing it to its historical volatility, Home Depot is 21.66 times less risky than BYD. It trades about 0.22 of its potential returns per unit of risk. BYD Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,292 in BYD Co on September 13, 2024 and sell it today you would earn a total of 268.00 from holding BYD Co or generate 8.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Home Depot vs. BYD Co
Performance |
| Timeline |
| Home Depot |
| BYD Co |
Home Depot and BYD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and BYD
The main advantage of trading using opposite Home Depot and BYD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, BYD 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 BYD will offset losses from the drop in BYD's long position.| Home Depot vs. Rightmove PLC | Home Depot vs. Bioventix | Home Depot vs. VeriSign | Home Depot vs. Games Workshop Group |
| BYD vs. Automatic Data Processing | BYD vs. Take Two Interactive Software | BYD vs. Auto Trader Group | BYD vs. Evolution Gaming Group |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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