Correlation Between Home Depot and 529043AE1

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Can any of the company-specific risk be diversified away by investing in both Home Depot and 529043AE1 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 529043AE1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and US529043AE19, you can compare the effects of market volatilities on Home Depot and 529043AE1 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 529043AE1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and 529043AE1.

Diversification Opportunities for Home Depot and 529043AE1

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between Home and 529043AE1 is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and US529043AE19 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US529043AE19 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 529043AE1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US529043AE19 has no effect on the direction of Home Depot i.e., Home Depot and 529043AE1 go up and down completely randomly.

Pair Corralation between Home Depot and 529043AE1

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.52 times more return on investment than 529043AE1. However, Home Depot is 1.94 times less risky than 529043AE1. It trades about 0.29 of its potential returns per unit of risk. US529043AE19 is currently generating about -0.3 per unit of risk. If you would invest  39,046  in Home Depot on August 31, 2024 and sell it today you would earn a total of  3,673  from holding Home Depot or generate 9.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy50.0%
ValuesDaily Returns

Home Depot  vs.  US529043AE19

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
US529043AE19 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days US529043AE19 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for US529043AE19 investors.

Home Depot and 529043AE1 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and 529043AE1

The main advantage of trading using opposite Home Depot and 529043AE1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, 529043AE1 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 529043AE1 will offset losses from the drop in 529043AE1's long position.
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The idea behind Home Depot and US529043AE19 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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