Correlation Between Home Depot and PT Bank
Can any of the company-specific risk be diversified away by investing in both Home Depot and PT Bank 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 PT Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and PT Bank Rakyat, you can compare the effects of market volatilities on Home Depot and PT Bank 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 PT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and PT Bank.
Diversification Opportunities for Home Depot and PT Bank
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Home and BKRKF is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of Home Depot i.e., Home Depot and PT Bank go up and down completely randomly.
Pair Corralation between Home Depot and PT Bank
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.21 times more return on investment than PT Bank. However, Home Depot is 4.72 times less risky than PT Bank. It trades about 0.1 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about 0.02 per unit of risk. If you would invest 31,362 in Home Depot on August 27, 2024 and sell it today you would earn a total of 10,638 from holding Home Depot or generate 33.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 85.08% |
| Values | Daily Returns |
Home Depot vs. PT Bank Rakyat
Performance |
| Timeline |
| Home Depot |
| PT Bank Rakyat |
Home Depot and PT Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and PT Bank
The main advantage of trading using opposite Home Depot and PT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, PT Bank 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 PT Bank will offset losses from the drop in PT Bank's long position.The idea behind Home Depot and PT Bank Rakyat 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.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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