Correlation Between Home Depot and Dream Unlimited

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

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

Diversification Opportunities for Home Depot and Dream Unlimited

0.19

Correlation Coefficient

Home Depot  Dream Unlimited

Average diversification

The 3 months correlation between Home and Dream is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Dream Unlimited Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dream Unlimited Corp 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 Dream Unlimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dream Unlimited Corp has no effect on the direction of Home Depot i.e., Home Depot and Dream Unlimited go up and down completely randomly.

Pair Corralation between Home Depot and Dream Unlimited

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.01 times more return on investment than Dream Unlimited. However, Home Depot is 1.01 times more volatile than Dream Unlimited Corp. It trades about 0.31 of its potential returns per unit of risk. Dream Unlimited Corp is currently generating about -0.3 per unit of risk. If you would invest  38,502  in Home Depot on October 20, 2024 and sell it today you would earn a total of  2,436  from holding Home Depot or generate 6.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Home Depot  vs.  Dream Unlimited Corp

Home Depot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Dream Unlimited Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dream Unlimited Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Home Depot and Dream Unlimited

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

The idea behind Home Depot and Dream Unlimited Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.