Correlation Between Bank of America and Home Depot
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and The Home Depot, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Home Depot.
Diversification Opportunities for Bank of America and Home Depot
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Home is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Home Depot go up and down completely randomly.
Pair Corralation between Bank of America and Home Depot
Assuming the 90 days trading horizon Bank of America is expected to generate 1.78 times less return on investment than Home Depot. But when comparing it to its historical volatility, Bank of America is 1.14 times less risky than Home Depot. It trades about 0.04 of its potential returns per unit of risk. The Home Depot is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 8,640 in The Home Depot on October 28, 2024 and sell it today you would earn a total of 158.00 from holding The Home Depot or generate 1.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. The Home Depot
Performance |
| Timeline |
| Bank of America |
| Home Depot |
Bank of America and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Home Depot
The main advantage of trading using opposite Bank of America and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. SVB Financial Group | Bank of America vs. Truist Financial | Bank of America vs. Citizens Financial Group, | Bank of America vs. Credit Acceptance |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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