Correlation Between Home Depot and Strategic Education
Can any of the company-specific risk be diversified away by investing in both Home Depot and Strategic Education 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 Strategic Education into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Strategic Education, you can compare the effects of market volatilities on Home Depot and Strategic Education 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 Strategic Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Strategic Education.
Diversification Opportunities for Home Depot and Strategic Education
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Home and Strategic is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Strategic Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Education 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 Strategic Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Education has no effect on the direction of Home Depot i.e., Home Depot and Strategic Education go up and down completely randomly.
Pair Corralation between Home Depot and Strategic Education
Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.22 times less return on investment than Strategic Education. But when comparing it to its historical volatility, Home Depot is 1.49 times less risky than Strategic Education. It trades about 0.19 of its potential returns per unit of risk. Strategic Education is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 8,674 in Strategic Education on August 28, 2024 and sell it today you would earn a total of 1,278 from holding Strategic Education or generate 14.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Strategic Education
Performance |
| Timeline |
| Home Depot |
| Strategic Education |
Home Depot and Strategic Education Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Strategic Education
The main advantage of trading using opposite Home Depot and Strategic Education positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Strategic Education 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 Strategic Education will offset losses from the drop in Strategic Education's long position.The idea behind Home Depot and Strategic Education 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.| Strategic Education vs. Element Solutions | Strategic Education vs. DoubleVerify Holdings | Strategic Education vs. CECO Environmental Corp | Strategic Education vs. American Public Education |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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