Correlation Between Home Depot and Amtech Systems

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

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

Diversification Opportunities for Home Depot and Amtech Systems

0.26

Correlation Coefficient

Home Depot  Amtech Systems

Modest diversification

The 3 months correlation between Home and Amtech is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Amtech Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amtech Systems 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 Amtech Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amtech Systems has no effect on the direction of Home Depot i.e., Home Depot and Amtech Systems go up and down completely randomly.

Pair Corralation between Home Depot and Amtech Systems

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.42 times more return on investment than Amtech Systems. However, Home Depot is 2.41 times less risky than Amtech Systems. It trades about -0.07 of its potential returns per unit of risk. Amtech Systems is currently generating about -0.03 per unit of risk. If you would invest  38,697  in Home Depot on December 28, 2024 and sell it today you would lose (2,424) from holding Home Depot or give up 6.26% of portfolio value over 90 days.

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

Home Depot  vs.  Amtech Systems

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Amtech Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amtech Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Home Depot and Amtech Systems

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

The idea behind Home Depot and Amtech Systems 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.