Correlation Between Titan Machinery and Home Depot

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

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

Diversification Opportunities for Titan Machinery and Home Depot

0.8

Correlation Coefficient

Titan Machinery  Home Depot

Very poor diversification

The 3 months correlation between Titan and Home is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Titan Machinery and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Titan Machinery 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 Titan Machinery 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 Titan Machinery i.e., Titan Machinery and Home Depot go up and down completely randomly.

Pair Corralation between Titan Machinery and Home Depot

Assuming the 90 days horizon Titan Machinery is expected to generate 2.3 times more return on investment than Home Depot. However, Titan Machinery is 2.3 times more volatile than The Home Depot. It trades about -0.09 of its potential returns per unit of risk. The Home Depot is currently generating about -0.37 per unit of risk. If you would invest  1,410  in Titan Machinery on October 8, 2024 and sell it today you would lose (70.00) from holding Titan Machinery or give up 4.96% of portfolio value over 90 days.

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

Titan Machinery  vs.  The Home Depot

Titan Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Titan Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Home Depot

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Home Depot is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Titan Machinery and Home Depot

The main advantage of trading using opposite Titan Machinery and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Titan Machinery 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 Titan Machinery and The 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.