Correlation Between Home Depot and Guggenheim World
Can any of the company-specific risk be diversified away by investing in both Home Depot and Guggenheim World 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 Guggenheim World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Guggenheim World Equity, you can compare the effects of market volatilities on Home Depot and Guggenheim World 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 Guggenheim World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Guggenheim World.
Diversification Opportunities for Home Depot and Guggenheim World
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Guggenheim is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Guggenheim World Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim World Equity 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 Guggenheim World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim World Equity has no effect on the direction of Home Depot i.e., Home Depot and Guggenheim World go up and down completely randomly.
Pair Corralation between Home Depot and Guggenheim World
Allowing for the 90-day total investment horizon Home Depot is expected to generate 3.11 times more return on investment than Guggenheim World. However, Home Depot is 3.11 times more volatile than Guggenheim World Equity. It trades about 0.19 of its potential returns per unit of risk. Guggenheim World Equity is currently generating about 0.13 per unit of risk. If you would invest 40,289 in Home Depot on August 28, 2024 and sell it today you would earn a total of 2,578 from holding Home Depot or generate 6.4% 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. Guggenheim World Equity
Performance |
| Timeline |
| Home Depot |
| Guggenheim World Equity |
Home Depot and Guggenheim World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Guggenheim World
The main advantage of trading using opposite Home Depot and Guggenheim World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Guggenheim World 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 Guggenheim World will offset losses from the drop in Guggenheim World's long position.The idea behind Home Depot and Guggenheim World Equity 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.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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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