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 Large, 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
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large 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 Large 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 1.5 times more return on investment than First Trust. However, Home Depot is 1.5 times more volatile than First Trust Large. It trades about 0.29 of its potential returns per unit of risk. First Trust Large is currently generating about 0.27 per unit of risk. If you would invest 39,046 in Home Depot on August 31, 2024 and sell it today you would earn a total of 3,673 from holding Home Depot or generate 9.41% 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 Large
Performance |
| Timeline |
| Home Depot |
| First Trust Large |
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. RLJ Lodging Trust | Home Depot vs. Aquagold International | Home Depot vs. Stepstone Group | Home Depot vs. Morningstar Unconstrained Allocation |
| First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |