Correlation Between Energisa and Home Depot

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

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

Diversification Opportunities for Energisa and Home Depot

-0.88

Correlation Coefficient

Energisa  Home Depot

Pay attention - limited upside

The 3 months correlation between Energisa and Home is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Energisa 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 Energisa SA 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 Energisa i.e., Energisa and Home Depot go up and down completely randomly.

Pair Corralation between Energisa and Home Depot

Assuming the 90 days trading horizon Energisa SA is expected to under-perform the Home Depot. In addition to that, Energisa is 1.14 times more volatile than The Home Depot. It trades about -0.18 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.29 per unit of volatility. If you would invest  7,274  in The Home Depot on September 1, 2024 and sell it today you would earn a total of  1,795  from holding The Home Depot or generate 24.68% return on investment over 90 days.

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

Energisa SA  vs.  The Home Depot

Energisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energisa SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Home Depot

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Home Depot sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energisa and Home Depot

The main advantage of trading using opposite Energisa and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energisa 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 Energisa SA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.