Correlation Between Home Depot and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Home Depot and Northern Lights 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 Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Northern Lights, you can compare the effects of market volatilities on Home Depot and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Northern Lights.
Diversification Opportunities for Home Depot and Northern Lights
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Northern is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Home Depot i.e., Home Depot and Northern Lights go up and down completely randomly.
Pair Corralation between Home Depot and Northern Lights
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.42 times more return on investment than Northern Lights. However, Home Depot is 1.42 times more volatile than Northern Lights. It trades about 0.23 of its potential returns per unit of risk. Northern Lights is currently generating about 0.17 per unit of risk. If you would invest 39,245 in Home Depot on October 22, 2024 and sell it today you would earn a total of 1,693 from holding Home Depot or generate 4.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Northern Lights
Performance |
| Timeline |
| Home Depot |
| Northern Lights |
Home Depot and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Northern Lights
The main advantage of trading using opposite Home Depot and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
| Northern Lights vs. SmartETFs Dividend Builder | Northern Lights vs. Grizzle Growth ETF | Northern Lights vs. FMQQ The Next |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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