Correlation Between Home Depot and Dreyfus Global

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

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

Diversification Opportunities for Home Depot and Dreyfus Global

0.86

Correlation Coefficient

Home Depot  Dreyfus Global

Very poor diversification

The 3 months correlation between Home and Dreyfus is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Dreyfus Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Global Real 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 Dreyfus Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Global Real has no effect on the direction of Home Depot i.e., Home Depot and Dreyfus Global go up and down completely randomly.

Pair Corralation between Home Depot and Dreyfus Global

Allowing for the 90-day total investment horizon Home Depot is expected to generate 3.47 times more return on investment than Dreyfus Global. However, Home Depot is 3.47 times more volatile than Dreyfus Global Real. It trades about 0.22 of its potential returns per unit of risk. Dreyfus Global Real is currently generating about 0.18 per unit of risk. If you would invest  36,276  in Home Depot on September 4, 2024 and sell it today you would earn a total of  6,420  from holding Home Depot or generate 17.7% 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.  Dreyfus Global Real

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 unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Dreyfus Global Real

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Global Real are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Dreyfus Global 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 Dreyfus Global

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

The idea behind Home Depot and Dreyfus Global Real 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.