Correlation Between National Beverage and Home Depot

Can any of the company-specific risk be diversified away by investing in both National Beverage and Home Depot 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 National Beverage and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Beverage Corp and Home Depot, you can compare the effects of market volatilities on National Beverage and Home Depot 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 National Beverage with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Home Depot.

Diversification Opportunities for National Beverage and Home Depot

-0.23

Correlation Coefficient

National Beverage  Home Depot

Very good diversification

The 3 months correlation between National and Home is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and National Beverage 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 National Beverage Corp are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of National Beverage i.e., National Beverage and Home Depot go up and down completely randomly.

Pair Corralation between National Beverage and Home Depot

Assuming the 90 days trading horizon National Beverage Corp is expected to under-perform the Home Depot. In addition to that, National Beverage is 9.85 times more volatile than Home Depot. It trades about -0.11 of its total potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of volatility. If you would invest  17,627  in Home Depot on December 24, 2024 and sell it today you would earn a total of  230.00  from holding Home Depot or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

National Beverage Corp  vs.  Home Depot

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Home Depot

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with National Beverage and Home Depot

The main advantage of trading using opposite National Beverage and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.

The idea behind National Beverage Corp and Home Depot 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.