Correlation Between Home Depot and 540424AT5

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Can any of the company-specific risk be diversified away by investing in both Home Depot and 540424AT5 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 540424AT5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and US540424AT59, you can compare the effects of market volatilities on Home Depot and 540424AT5 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 540424AT5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and 540424AT5.

Diversification Opportunities for Home Depot and 540424AT5

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Home and 540424AT5 is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and US540424AT59 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US540424AT59 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 540424AT5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US540424AT59 has no effect on the direction of Home Depot i.e., Home Depot and 540424AT5 go up and down completely randomly.

Pair Corralation between Home Depot and 540424AT5

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.23 times more return on investment than 540424AT5. However, Home Depot is 1.23 times more volatile than US540424AT59. It trades about 0.05 of its potential returns per unit of risk. US540424AT59 is currently generating about 0.0 per unit of risk. If you would invest  31,613  in Home Depot on September 3, 2024 and sell it today you would earn a total of  11,083  from holding Home Depot or generate 35.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy80.4%
ValuesDaily Returns

Home Depot  vs.  US540424AT59

 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 fragile fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
US540424AT59 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days US540424AT59 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 540424AT5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Home Depot and 540424AT5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and 540424AT5

The main advantage of trading using opposite Home Depot and 540424AT5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, 540424AT5 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 540424AT5 will offset losses from the drop in 540424AT5's long position.
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The idea behind Home Depot and US540424AT59 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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