Correlation Between Home Depot and BankFirst Capital

Can any of the company-specific risk be diversified away by investing in both Home Depot and BankFirst 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 BankFirst 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 BankFirst Capital, you can compare the effects of market volatilities on Home Depot and BankFirst 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 BankFirst Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and BankFirst Capital.

Diversification Opportunities for Home Depot and BankFirst Capital

-0.34

Correlation Coefficient

Home Depot  BankFirst Capital

Very good diversification

The 3 months correlation between Home and BankFirst is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and BankFirst Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFirst 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 BankFirst Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFirst Capital has no effect on the direction of Home Depot i.e., Home Depot and BankFirst Capital go up and down completely randomly.

Pair Corralation between Home Depot and BankFirst Capital

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the BankFirst Capital. In addition to that, Home Depot is 2.24 times more volatile than BankFirst Capital. It trades about -0.08 of its total potential returns per unit of risk. BankFirst Capital is currently generating about -0.03 per unit of volatility. If you would invest  4,050  in BankFirst Capital on December 27, 2024 and sell it today you would lose (50.00) from holding BankFirst Capital or give up 1.23% of portfolio value over 90 days.

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

Home Depot  vs.  BankFirst Capital

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 latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BankFirst Capital

Risk-Adjusted Performance

Insignificant

Over the last 90 days BankFirst Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, BankFirst Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Home Depot and BankFirst Capital

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

The idea behind Home Depot and BankFirst 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.