Correlation Between Home Depot and L Catterton
Can any of the company-specific risk be diversified away by investing in both Home Depot and L Catterton 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 L Catterton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and L Catterton Asia, you can compare the effects of market volatilities on Home Depot and L Catterton 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 L Catterton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and L Catterton.
Diversification Opportunities for Home Depot and L Catterton
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and LCAA is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and L Catterton Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L Catterton Asia 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 L Catterton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L Catterton Asia has no effect on the direction of Home Depot i.e., Home Depot and L Catterton go up and down completely randomly.
Pair Corralation between Home Depot and L Catterton
Allowing for the 90-day total investment horizon Home Depot is expected to generate 6.24 times more return on investment than L Catterton. However, Home Depot is 6.24 times more volatile than L Catterton Asia. It trades about 0.06 of its potential returns per unit of risk. L Catterton Asia is currently generating about 0.14 per unit of risk. If you would invest 30,778 in Home Depot on August 29, 2024 and sell it today you would earn a total of 11,941 from holding Home Depot or generate 38.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 31.45% |
| Values | Daily Returns |
Home Depot vs. L Catterton Asia
Performance |
| Timeline |
| Home Depot |
| L Catterton Asia |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Home Depot and L Catterton Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and L Catterton
The main advantage of trading using opposite Home Depot and L Catterton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, L Catterton 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 L Catterton will offset losses from the drop in L Catterton'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 |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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