Correlation Between GM and HOME DEPOT
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and HOME DEPOT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and HOME DEPOT CDR, you can compare the effects of market volatilities on GM 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 GM with a short position of HOME DEPOT. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and HOME DEPOT.
Diversification Opportunities for GM and HOME DEPOT
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and HOME is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HOME DEPOT CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT CDR and GM 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 General Motors 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 CDR has no effect on the direction of GM i.e., GM and HOME DEPOT go up and down completely randomly.
Pair Corralation between GM and HOME DEPOT
Allowing for the 90-day total investment horizon GM is expected to generate 1.2 times less return on investment than HOME DEPOT. In addition to that, GM is 1.73 times more volatile than HOME DEPOT CDR. It trades about 0.08 of its total potential returns per unit of risk. HOME DEPOT CDR is currently generating about 0.17 per unit of volatility. If you would invest 2,109 in HOME DEPOT CDR on August 31, 2024 and sell it today you would earn a total of 646.00 from holding HOME DEPOT CDR or generate 30.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. HOME DEPOT CDR
Performance |
| Timeline |
| General Motors |
| HOME DEPOT CDR |
GM and HOME DEPOT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and HOME DEPOT
The main advantage of trading using opposite GM and HOME DEPOT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and HOME DEPOT CDR 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.| HOME DEPOT vs. Berkshire Hathaway CDR | HOME DEPOT vs. JPMorgan Chase Co | HOME DEPOT vs. Bank of America | HOME DEPOT vs. Alphabet Inc CDR |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
Other Complementary Tools
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |