Correlation Between Home Depot and AeroVironment
Can any of the company-specific risk be diversified away by investing in both Home Depot and AeroVironment 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 AeroVironment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and AeroVironment, you can compare the effects of market volatilities on Home Depot and AeroVironment 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 AeroVironment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and AeroVironment.
Diversification Opportunities for Home Depot and AeroVironment
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Home and AeroVironment is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 The Home Depot are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Home Depot i.e., Home Depot and AeroVironment go up and down completely randomly.
Pair Corralation between Home Depot and AeroVironment
Assuming the 90 days trading horizon The Home Depot is expected to generate 0.27 times more return on investment than AeroVironment. However, The Home Depot is 3.71 times less risky than AeroVironment. It trades about -0.04 of its potential returns per unit of risk. AeroVironment is currently generating about -0.16 per unit of risk. If you would invest 38,341 in The Home Depot on October 10, 2024 and sell it today you would lose (856.00) from holding The Home Depot or give up 2.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. AeroVironment
Performance |
| Timeline |
| Home Depot |
| AeroVironment |
Home Depot and AeroVironment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and AeroVironment
The main advantage of trading using opposite Home Depot and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, AeroVironment 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 AeroVironment will offset losses from the drop in AeroVironment's long position.| Home Depot vs. TT Electronics PLC | Home Depot vs. Motorcar Parts of | Home Depot vs. CarsalesCom | Home Depot vs. Nucletron Electronic Aktiengesellschaft |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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