Correlation Between Home Depot and Armada Mercantile
Can any of the company-specific risk be diversified away by investing in both Home Depot and Armada Mercantile 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 Home Depot and Armada Mercantile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Armada Mercantile, you can compare the effects of market volatilities on Home Depot and Armada Mercantile 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 Home Depot with a short position of Armada Mercantile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Armada Mercantile.
Diversification Opportunities for Home Depot and Armada Mercantile
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Home and Armada is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile and Home Depot 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 Home Depot are associated (or correlated) with Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of Home Depot i.e., Home Depot and Armada Mercantile go up and down completely randomly.
Pair Corralation between Home Depot and Armada Mercantile
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.23 times more return on investment than Armada Mercantile. However, Home Depot is 4.42 times less risky than Armada Mercantile. It trades about 0.12 of its potential returns per unit of risk. Armada Mercantile is currently generating about 0.01 per unit of risk. If you would invest 28,561 in Home Depot on September 1, 2024 and sell it today you would earn a total of 14,352 from holding Home Depot or generate 50.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.63% |
| Values | Daily Returns |
Home Depot vs. Armada Mercantile
Performance |
| Timeline |
| Home Depot |
| Armada Mercantile |
Home Depot and Armada Mercantile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Armada Mercantile
The main advantage of trading using opposite Home Depot and Armada Mercantile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Armada Mercantile 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 Armada Mercantile will offset losses from the drop in Armada Mercantile's long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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