Correlation Between GOLD ROAD and Home Depot

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Can any of the company-specific risk be diversified away by investing in both GOLD ROAD 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 GOLD ROAD and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GOLD ROAD RES and The Home Depot, you can compare the effects of market volatilities on GOLD ROAD 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 GOLD ROAD with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of GOLD ROAD and Home Depot.

Diversification Opportunities for GOLD ROAD and Home Depot

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between GOLD and Home is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding GOLD ROAD RES and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and GOLD ROAD 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 GOLD ROAD RES 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 GOLD ROAD i.e., GOLD ROAD and Home Depot go up and down completely randomly.

Pair Corralation between GOLD ROAD and Home Depot

Assuming the 90 days trading horizon GOLD ROAD RES is expected to under-perform the Home Depot. In addition to that, GOLD ROAD is 1.47 times more volatile than The Home Depot. It trades about -0.09 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.41 per unit of volatility. 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 Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

GOLD ROAD RES  vs.  The Home Depot

 Performance 
       Timeline  
GOLD ROAD RES 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in GOLD ROAD RES are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, GOLD ROAD exhibited solid returns over the last few months and may actually be approaching a breakup point.
Home Depot 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward indicators, Home Depot unveiled solid returns over the last few months and may actually be approaching a breakup point.

GOLD ROAD and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GOLD ROAD and Home Depot

The main advantage of trading using opposite GOLD ROAD and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GOLD ROAD 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.
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The idea behind GOLD ROAD RES and The Home Depot pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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