Correlation Between Home Depot and Bytes Technology

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

By analyzing existing cross correlation between Home Depot and Bytes Technology, you can compare the effects of market volatilities on Home Depot and Bytes Technology 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 Bytes Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Bytes Technology.

Diversification Opportunities for Home Depot and Bytes Technology

0.47

Correlation Coefficient

Home Depot  Bytes Technology

Very weak diversification

The 3 months correlation between Home and Bytes is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Bytes Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bytes Technology 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 Bytes Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bytes Technology has no effect on the direction of Home Depot i.e., Home Depot and Bytes Technology go up and down completely randomly.

Pair Corralation between Home Depot and Bytes Technology

Assuming the 90 days trading horizon Home Depot is expected to generate 12.96 times less return on investment than Bytes Technology. But when comparing it to its historical volatility, Home Depot is 17.01 times less risky than Bytes Technology. It trades about 0.13 of its potential returns per unit of risk. Bytes Technology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  42,300  in Bytes Technology on December 27, 2024 and sell it today you would earn a total of  6,660  from holding Bytes Technology or generate 15.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Home Depot  vs.  Bytes Technology

Home Depot

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Home Depot is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Bytes Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bytes Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bytes Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Bytes Technology

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

The idea behind Home Depot and Bytes Technology 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 Anywhere module to track or share privately all of your investments from the convenience of any device.