Correlation Between Home Depot and 04686JAE1

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Can any of the company-specific risk be diversified away by investing in both Home Depot and 04686JAE1 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 04686JAE1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and ATH 345 15 MAY 52, you can compare the effects of market volatilities on Home Depot and 04686JAE1 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 04686JAE1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and 04686JAE1.

Diversification Opportunities for Home Depot and 04686JAE1

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home and 04686JAE1 is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ATH 345 15 MAY 52 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATH 345 15 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 04686JAE1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATH 345 15 has no effect on the direction of Home Depot i.e., Home Depot and 04686JAE1 go up and down completely randomly.

Pair Corralation between Home Depot and 04686JAE1

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.61 times more return on investment than 04686JAE1. However, Home Depot is 1.64 times less risky than 04686JAE1. It trades about 0.06 of its potential returns per unit of risk. ATH 345 15 MAY 52 is currently generating about 0.01 per unit of risk. If you would invest  27,387  in Home Depot on November 29, 2024 and sell it today you would earn a total of  11,640  from holding Home Depot or generate 42.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy83.2%
ValuesDaily Returns

Home Depot  vs.  ATH 345 15 MAY 52

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
ATH 345 15 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days ATH 345 15 MAY 52 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 04686JAE1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Home Depot and 04686JAE1 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and 04686JAE1

The main advantage of trading using opposite Home Depot and 04686JAE1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, 04686JAE1 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 04686JAE1 will offset losses from the drop in 04686JAE1's long position.
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The idea behind Home Depot and ATH 345 15 MAY 52 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.
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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