Correlation Between Home Depot and Childrens Place
Can any of the company-specific risk be diversified away by investing in both Home Depot and Childrens Place 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 Childrens Place into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Childrens Place, you can compare the effects of market volatilities on Home Depot and Childrens Place 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 Childrens Place. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Childrens Place.
Diversification Opportunities for Home Depot and Childrens Place
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Childrens is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place 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 Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Home Depot i.e., Home Depot and Childrens Place go up and down completely randomly.
Pair Corralation between Home Depot and Childrens Place
Allowing for the 90-day total investment horizon Home Depot is expected to generate 5.74 times less return on investment than Childrens Place. But when comparing it to its historical volatility, Home Depot is 3.22 times less risky than Childrens Place. It trades about 0.14 of its potential returns per unit of risk. Childrens Place is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 1,283 in Childrens Place on August 27, 2024 and sell it today you would earn a total of 327.00 from holding Childrens Place or generate 25.49% 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. Childrens Place
Performance |
| Timeline |
| Home Depot |
| Childrens Place |
Home Depot and Childrens Place Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Childrens Place
The main advantage of trading using opposite Home Depot and Childrens Place positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Childrens Place 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 Childrens Place will offset losses from the drop in Childrens Place's long position.The idea behind Home Depot and Childrens Place pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Childrens Place vs. Ross Stores | Childrens Place vs. Buckle Inc | Childrens Place vs. Guess Inc | Childrens Place vs. Abercrombie Fitch |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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