Correlation Between Caledonia Investments and Home Depot

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

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

Diversification Opportunities for Caledonia Investments and Home Depot

0.7

Correlation Coefficient

Caledonia Investments  Home Depot

Poor diversification

The 3 months correlation between Caledonia and Home is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Investments and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Caledonia Investments 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 Caledonia Investments 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 Caledonia Investments i.e., Caledonia Investments and Home Depot go up and down completely randomly.

Pair Corralation between Caledonia Investments and Home Depot

Assuming the 90 days trading horizon Caledonia Investments is expected to generate 1.66 times less return on investment than Home Depot. In addition to that, Caledonia Investments is 5.58 times more volatile than Home Depot. It trades about 0.01 of its total potential returns per unit of risk. Home Depot is currently generating about 0.09 per unit of volatility. If you would invest  16,193  in Home Depot on October 10, 2024 and sell it today you would earn a total of  1,664  from holding Home Depot or generate 10.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.19%
Values	Daily Returns

Caledonia Investments  vs.  Home Depot

Caledonia Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caledonia Investments is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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

Pair Trading with Caledonia Investments and Home Depot

The main advantage of trading using opposite Caledonia Investments and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caledonia Investments 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 Caledonia Investments 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.