Correlation Between Home Depot and First Trust
Can any of the company-specific risk be diversified away by investing in both Home Depot and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and First Trust International, you can compare the effects of market volatilities on Home Depot and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and First Trust.
Diversification Opportunities for Home Depot and First Trust
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust International has no effect on the direction of Home Depot i.e., Home Depot and First Trust go up and down completely randomly.
Pair Corralation between Home Depot and First Trust
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.3 times less return on investment than First Trust. In addition to that, Home Depot is 1.15 times more volatile than First Trust International. It trades about 0.06 of its total potential returns per unit of risk. First Trust International is currently generating about 0.08 per unit of volatility. If you would invest 4,143 in First Trust International on November 9, 2024 and sell it today you would earn a total of 1,082 from holding First Trust International or generate 26.12% 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. First Trust International
Performance |
| Timeline |
| Home Depot |
| First Trust International |
Home Depot and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and First Trust
The main advantage of trading using opposite Home Depot and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
| First Trust vs. First Trust Mid | First Trust vs. First Trust Emerging | First Trust vs. First Trust Emerging | First Trust vs. First Trust SSI |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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