Correlation Between Home Depot and FT Cboe

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

Diversification Opportunities for Home Depot and FT Cboe

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home and BGLD is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and FT Cboe Vest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Cboe Vest 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 FT Cboe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Cboe Vest has no effect on the direction of Home Depot i.e., Home Depot and FT Cboe go up and down completely randomly.

Pair Corralation between Home Depot and FT Cboe

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.27 times more return on investment than FT Cboe. However, Home Depot is 1.27 times more volatile than FT Cboe Vest. It trades about 0.09 of its potential returns per unit of risk. FT Cboe Vest is currently generating about 0.08 per unit of risk. If you would invest  28,387  in Home Depot on August 27, 2024 and sell it today you would earn a total of  13,613  from holding Home Depot or generate 47.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  FT Cboe Vest

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
FT Cboe Vest 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in FT Cboe Vest are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, FT Cboe may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Home Depot and FT Cboe Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and FT Cboe

The main advantage of trading using opposite Home Depot and FT Cboe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, FT Cboe 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 FT Cboe will offset losses from the drop in FT Cboe's long position.
The idea behind Home Depot and FT Cboe Vest 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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