Correlation Between HOME DEPOT and Brookfield

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

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

Diversification Opportunities for HOME DEPOT and Brookfield

0.75

Correlation Coefficient

HOME DEPOT  Brookfield

Poor diversification

The 3 months correlation between HOME and Brookfield is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding HOME DEPOT CDR and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield and HOME DEPOT 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 HOME DEPOT CDR are associated (or correlated) with Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of HOME DEPOT i.e., HOME DEPOT and Brookfield go up and down completely randomly.

Pair Corralation between HOME DEPOT and Brookfield

Assuming the 90 days trading horizon HOME DEPOT is expected to generate 2.97 times less return on investment than Brookfield. But when comparing it to its historical volatility, HOME DEPOT CDR is 1.1 times less risky than Brookfield. It trades about 0.1 of its potential returns per unit of risk. Brookfield is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  6,804  in Brookfield on September 18, 2024 and sell it today you would earn a total of  1,640  from holding Brookfield or generate 24.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

HOME DEPOT CDR  vs.  Brookfield

HOME DEPOT CDR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HOME DEPOT CDR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, HOME DEPOT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HOME DEPOT and Brookfield

The main advantage of trading using opposite HOME DEPOT and Brookfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HOME DEPOT position performs unexpectedly, Brookfield 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 Brookfield will offset losses from the drop in Brookfield's long position.

The idea behind HOME DEPOT CDR and Brookfield 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.