Correlation Between Home Depot and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Home Depot and NorAm Drilling 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 NorAm Drilling 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 NorAm Drilling AS, you can compare the effects of market volatilities on Home Depot and NorAm Drilling 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 NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and NorAm Drilling.
Diversification Opportunities for Home Depot and NorAm Drilling
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and NorAm is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and NorAm Drilling AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorAm Drilling AS 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 NorAm Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorAm Drilling AS has no effect on the direction of Home Depot i.e., Home Depot and NorAm Drilling go up and down completely randomly.
Pair Corralation between Home Depot and NorAm Drilling
Assuming the 90 days trading horizon The Home Depot is expected to generate 0.28 times more return on investment than NorAm Drilling. However, The Home Depot is 3.53 times less risky than NorAm Drilling. It trades about 0.26 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.02 per unit of risk. If you would invest 37,055 in The Home Depot on August 26, 2024 and sell it today you would earn a total of 3,020 from holding The Home Depot or generate 8.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. NorAm Drilling AS
Performance |
| Timeline |
| Home Depot |
| NorAm Drilling AS |
Home Depot and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and NorAm Drilling
The main advantage of trading using opposite Home Depot and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, NorAm Drilling 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 NorAm Drilling will offset losses from the drop in NorAm Drilling's long position.| Home Depot vs. WICKES GROUP PLC | Home Depot vs. Superior Plus Corp | Home Depot vs. NMI Holdings | Home Depot vs. Origin Agritech |
| NorAm Drilling vs. Norwegian Air Shuttle | NorAm Drilling vs. WIZZ AIR HLDGUNSPADR4 | NorAm Drilling vs. LAir Liquide SA | NorAm Drilling vs. Fair Isaac Corp |
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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