Correlation Between Home Depot and Horizon Active
Can any of the company-specific risk be diversified away by investing in both Home Depot and Horizon Active 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 Horizon Active into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Horizon Active Risk, you can compare the effects of market volatilities on Home Depot and Horizon Active 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 Horizon Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Horizon Active.
Diversification Opportunities for Home Depot and Horizon Active
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Home and Horizon is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Horizon Active Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Active Risk 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 Horizon Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Active Risk has no effect on the direction of Home Depot i.e., Home Depot and Horizon Active go up and down completely randomly.
Pair Corralation between Home Depot and Horizon Active
Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.33 times more return on investment than Horizon Active. However, Home Depot is 2.33 times more volatile than Horizon Active Risk. It trades about 0.19 of its potential returns per unit of risk. Horizon Active Risk is currently generating about 0.07 per unit of risk. If you would invest 40,289 in Home Depot on August 28, 2024 and sell it today you would earn a total of 2,578 from holding Home Depot or generate 6.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Horizon Active Risk
Performance |
| Timeline |
| Home Depot |
| Horizon Active Risk |
Home Depot and Horizon Active Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Horizon Active
The main advantage of trading using opposite Home Depot and Horizon Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Horizon Active 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 Horizon Active will offset losses from the drop in Horizon Active's long position.The idea behind Home Depot and Horizon Active Risk 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.| Horizon Active vs. Horizon Active Asset | Horizon Active vs. Horizon Active Dividend | Horizon Active vs. Horizon Defined Risk | Horizon Active vs. Horizon Defensive Equity |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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