Correlation Between GE Aerospace and Home Depot
Can any of the company-specific risk be diversified away by investing in both GE Aerospace 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 GE Aerospace and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GE Aerospace and Home Depot, you can compare the effects of market volatilities on GE Aerospace 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 GE Aerospace with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and Home Depot.
Diversification Opportunities for GE Aerospace and Home Depot
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GE Aerospace and Home is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and GE Aerospace 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 GE Aerospace 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 GE Aerospace i.e., GE Aerospace and Home Depot go up and down completely randomly.
Pair Corralation between GE Aerospace and Home Depot
Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 2.55 times less return on investment than Home Depot. In addition to that, GE Aerospace is 1.07 times more volatile than Home Depot. It trades about 0.11 of its total potential returns per unit of risk. Home Depot is currently generating about 0.29 per unit of volatility. If you would invest 39,046 in Home Depot on August 31, 2024 and sell it today you would earn a total of 3,673 from holding Home Depot or generate 9.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GE Aerospace vs. Home Depot
Performance |
| Timeline |
| GE Aerospace |
| Home Depot |
GE Aerospace and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GE Aerospace and Home Depot
The main advantage of trading using opposite GE Aerospace and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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.| GE Aerospace vs. Illinois Tool Works | GE Aerospace vs. Dover | GE Aerospace vs. Cummins | GE Aerospace vs. Eaton PLC |
| Home Depot vs. RLJ Lodging Trust | Home Depot vs. Aquagold International | Home Depot vs. Stepstone Group | Home Depot vs. Morningstar Unconstrained Allocation |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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