Correlation Between Auction Technology and Home Depot

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

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

Diversification Opportunities for Auction Technology and Home Depot

0.84

Correlation Coefficient

Auction Technology  Home Depot

Very poor diversification

The 3 months correlation between Auction and Home is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Auction Technology Group and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Auction Technology 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 Auction Technology Group 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 Auction Technology i.e., Auction Technology and Home Depot go up and down completely randomly.

Pair Corralation between Auction Technology and Home Depot

Assuming the 90 days trading horizon Auction Technology Group is expected to generate 15.53 times more return on investment than Home Depot. However, Auction Technology is 15.53 times more volatile than Home Depot. It trades about 0.17 of its potential returns per unit of risk. Home Depot is currently generating about 0.16 per unit of risk. If you would invest  45,200  in Auction Technology Group on October 6, 2024 and sell it today you would earn a total of  10,500  from holding Auction Technology Group or generate 23.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Auction Technology Group  vs.  Home Depot

Auction Technology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Auction Technology Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Auction Technology exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

10 of 100

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Auction Technology and Home Depot

The main advantage of trading using opposite Auction Technology and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auction Technology 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 Auction Technology Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.