Correlation Between Educational Development and Home Depot

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

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

Diversification Opportunities for Educational Development and Home Depot

0.25

Correlation Coefficient

Educational Development  Home Depot

Modest diversification

The 3 months correlation between Educational and Home is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Educational Development and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Educational Development 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 Educational Development 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 Educational Development i.e., Educational Development and Home Depot go up and down completely randomly.

Pair Corralation between Educational Development and Home Depot

Given the investment horizon of 90 days Educational Development is expected to generate 3.93 times more return on investment than Home Depot. However, Educational Development is 3.93 times more volatile than Home Depot. It trades about 0.07 of its potential returns per unit of risk. Home Depot is currently generating about 0.09 per unit of risk. If you would invest  87.00  in Educational Development on October 21, 2024 and sell it today you would earn a total of  78.00  from holding Educational Development or generate 89.66% return on investment over 90 days.

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

Educational Development  vs.  Home Depot

Educational Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Educational Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Home Depot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Educational Development and Home Depot

The main advantage of trading using opposite Educational Development and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Educational Development 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 Educational Development 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.