Correlation Between Home Depot and Frequency Electronics
Can any of the company-specific risk be diversified away by investing in both Home Depot and Frequency Electronics 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 Frequency Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Frequency Electronics, you can compare the effects of market volatilities on Home Depot and Frequency Electronics 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 Frequency Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Frequency Electronics.
Diversification Opportunities for Home Depot and Frequency Electronics
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Home and Frequency is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Frequency Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Electronics 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 Frequency Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Electronics has no effect on the direction of Home Depot i.e., Home Depot and Frequency Electronics go up and down completely randomly.
Pair Corralation between Home Depot and Frequency Electronics
Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.38 times less return on investment than Frequency Electronics. But when comparing it to its historical volatility, Home Depot is 2.43 times less risky than Frequency Electronics. It trades about 0.09 of its potential returns per unit of risk. Frequency Electronics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 601.00 in Frequency Electronics on August 31, 2024 and sell it today you would earn a total of 800.00 from holding Frequency Electronics or generate 133.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Frequency Electronics
Performance |
| Timeline |
| Home Depot |
| Frequency Electronics |
Home Depot and Frequency Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Frequency Electronics
The main advantage of trading using opposite Home Depot and Frequency Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Frequency Electronics 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 Frequency Electronics will offset losses from the drop in Frequency Electronics' long position.| Home Depot vs. RLJ Lodging Trust | Home Depot vs. Aquagold International | Home Depot vs. Stepstone Group | Home Depot vs. Morningstar Unconstrained Allocation |
| Frequency Electronics vs. BK Technologies | Frequency Electronics vs. Actelis Networks | Frequency Electronics vs. Lantronix | Frequency Electronics vs. KVH Industries |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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