Correlation Between Canadian Utilities and Home Depot
Can any of the company-specific risk be diversified away by investing in both Canadian Utilities 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 Canadian Utilities and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian Utilities Limited and The Home Depot, you can compare the effects of market volatilities on Canadian Utilities 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 Canadian Utilities with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Home Depot.
Diversification Opportunities for Canadian Utilities and Home Depot
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Canadian and Home is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and Home Depot go up and down completely randomly.
Pair Corralation between Canadian Utilities and Home Depot
Assuming the 90 days horizon Canadian Utilities is expected to generate 2.25 times less return on investment than Home Depot. But when comparing it to its historical volatility, Canadian Utilities Limited is 1.0 times less risky than Home Depot. It trades about 0.18 of its potential returns per unit of risk. The Home Depot is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest 35,974 in The Home Depot on September 1, 2024 and sell it today you would earn a total of 4,711 from holding The Home Depot or generate 13.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Canadian Utilities Limited vs. The Home Depot
Performance |
| Timeline |
| Canadian Utilities |
| Home Depot |
Canadian Utilities and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Utilities and Home Depot
The main advantage of trading using opposite Canadian Utilities and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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.| Canadian Utilities vs. ATRESMEDIA | Canadian Utilities vs. Lamar Advertising | Canadian Utilities vs. CARSALESCOM | Canadian Utilities vs. PLAYTIKA HOLDING DL 01 |
| Home Depot vs. FEMALE HEALTH | Home Depot vs. WILLIS LEASE FIN | Home Depot vs. SBM OFFSHORE | Home Depot vs. CVS Health |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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