Correlation Between Home Depot and Hawaii Municipal

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

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

Diversification Opportunities for Home Depot and Hawaii Municipal

0.89

Correlation Coefficient

Home Depot  Hawaii Municipal

Very poor diversification

The 3 months correlation between Home and Hawaii is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Hawaii Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaii Municipal Bond 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 Hawaii Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaii Municipal Bond has no effect on the direction of Home Depot i.e., Home Depot and Hawaii Municipal go up and down completely randomly.

Pair Corralation between Home Depot and Hawaii Municipal

Allowing for the 90-day total investment horizon Home Depot is expected to generate 8.76 times more return on investment than Hawaii Municipal. However, Home Depot is 8.76 times more volatile than Hawaii Municipal Bond. It trades about 0.1 of its potential returns per unit of risk. Hawaii Municipal Bond is currently generating about 0.12 per unit of risk. If you would invest  27,931  in Home Depot on October 8, 2024 and sell it today you would earn a total of  10,987  from holding Home Depot or generate 39.34% return on investment over 90 days.

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

Home Depot  vs.  Hawaii Municipal Bond

Home Depot

Risk-Adjusted Performance

0 of 100

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Hawaii Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hawaii Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Hawaii Municipal 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 Hawaii Municipal

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

The idea behind Home Depot and Hawaii Municipal Bond 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.