Correlation Between Home Depot and BT Brands
Can any of the company-specific risk be diversified away by investing in both Home Depot and BT Brands 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 BT Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and BT Brands Warrant, you can compare the effects of market volatilities on Home Depot and BT Brands 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 BT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and BT Brands.
Diversification Opportunities for Home Depot and BT Brands
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Home and BTBDW is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and BT Brands Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BT Brands Warrant 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 BT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BT Brands Warrant has no effect on the direction of Home Depot i.e., Home Depot and BT Brands go up and down completely randomly.
Pair Corralation between Home Depot and BT Brands
Allowing for the 90-day total investment horizon Home Depot is expected to generate 249.55 times less return on investment than BT Brands. But when comparing it to its historical volatility, Home Depot is 105.67 times less risky than BT Brands. It trades about 0.06 of its potential returns per unit of risk. BT Brands Warrant is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 20.00 in BT Brands Warrant on August 27, 2024 and sell it today you would lose (10.56) from holding BT Brands Warrant or give up 52.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 52.42% |
| Values | Daily Returns |
Home Depot vs. BT Brands Warrant
Performance |
| Timeline |
| Home Depot |
| BT Brands Warrant |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Home Depot and BT Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and BT Brands
The main advantage of trading using opposite Home Depot and BT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, BT Brands 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 BT Brands will offset losses from the drop in BT Brands' long position.The idea behind Home Depot and BT Brands Warrant 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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