Correlation Between Home Depot and Cavanal Hill

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

By analyzing existing cross correlation between Home Depot and Cavanal Hill Funds, you can compare the effects of market volatilities on Home Depot and Cavanal Hill 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 Cavanal Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Cavanal Hill.

Diversification Opportunities for Home Depot and Cavanal Hill

0.61

Correlation Coefficient

Home Depot  Cavanal Hill

Poor diversification

The 3 months correlation between Home and Cavanal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Cavanal Hill Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavanal Hill Funds 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 are associated (or correlated) with Cavanal Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavanal Hill Funds has no effect on the direction of Home Depot i.e., Home Depot and Cavanal Hill go up and down completely randomly.

Pair Corralation between Home Depot and Cavanal Hill

Allowing for the 90-day total investment horizon Home Depot is expected to generate 9.33 times more return on investment than Cavanal Hill. However, Home Depot is 9.33 times more volatile than Cavanal Hill Funds. It trades about 0.13 of its potential returns per unit of risk. Cavanal Hill Funds is currently generating about 0.12 per unit of risk. If you would invest  38,001  in Home Depot on September 16, 2024 and sell it today you would earn a total of  3,697  from holding Home Depot or generate 9.73% return on investment over 90 days.

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

Home Depot  vs.  Cavanal Hill Funds

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. In spite of rather inconsistent fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cavanal Hill Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cavanal Hill Funds are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Cavanal Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Cavanal Hill

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

The idea behind Home Depot and Cavanal Hill Funds 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..