Correlation Between Home Depot and BBX Capital

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

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

Diversification Opportunities for Home Depot and BBX Capital

-0.58

Correlation Coefficient

Home Depot  BBX Capital

Excellent diversification

The 3 months correlation between Home and BBX is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and BBX Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBX Capital 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 BBX Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBX Capital has no effect on the direction of Home Depot i.e., Home Depot and BBX Capital go up and down completely randomly.

Pair Corralation between Home Depot and BBX Capital

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.96 times more return on investment than BBX Capital. However, Home Depot is 1.04 times less risky than BBX Capital. It trades about 0.09 of its potential returns per unit of risk. BBX Capital is currently generating about 0.01 per unit of risk. If you would invest  27,795  in Home Depot on August 31, 2024 and sell it today you would earn a total of  14,924  from holding Home Depot or generate 53.69% return on investment over 90 days.

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

Home Depot  vs.  BBX Capital

Home Depot

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

BBX Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBX Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, BBX Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and BBX Capital

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

The idea behind Home Depot and BBX Capital 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.