Correlation Between Home Depot and Franklin Liberty
Can any of the company-specific risk be diversified away by investing in both Home Depot and Franklin Liberty 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 Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Franklin Liberty Low, you can compare the effects of market volatilities on Home Depot and Franklin Liberty 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 Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Franklin Liberty.
Diversification Opportunities for Home Depot and Franklin Liberty
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Franklin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Franklin Liberty Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Low 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 Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Low has no effect on the direction of Home Depot i.e., Home Depot and Franklin Liberty go up and down completely randomly.
Pair Corralation between Home Depot and Franklin Liberty
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.94 times more return on investment than Franklin Liberty. However, Home Depot is 1.94 times more volatile than Franklin Liberty Low. It trades about 0.05 of its potential returns per unit of risk. Franklin Liberty Low is currently generating about 0.07 per unit of risk. If you would invest 31,613 in Home Depot on September 3, 2024 and sell it today you would earn a total of 11,300 from holding Home Depot or generate 35.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 82.63% |
| Values | Daily Returns |
Home Depot vs. Franklin Liberty Low
Performance |
| Timeline |
| Home Depot |
| Franklin Liberty Low |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Home Depot and Franklin Liberty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Franklin Liberty
The main advantage of trading using opposite Home Depot and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Franklin Liberty 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 Franklin Liberty will offset losses from the drop in Franklin Liberty's long position.| Home Depot vs. Partner Communications | Home Depot vs. Merck Company | Home Depot vs. Western Midstream Partners | Home Depot vs. Edgewise Therapeutics |
| Franklin Liberty vs. Franklin Liberty Short | Franklin Liberty vs. Franklin LibertyQ Equity | Franklin Liberty vs. iShares Currency Hedged | Franklin Liberty vs. Franklin LibertyQ Mid |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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