Correlation Between Home Depot and FANH Old

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

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

Diversification Opportunities for Home Depot and FANH Old

-0.29

Correlation Coefficient

Home Depot  FANH Old

Very good diversification

The 3 months correlation between Home and FANH is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and FANH Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FANH Old 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 FANH Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FANH Old has no effect on the direction of Home Depot i.e., Home Depot and FANH Old go up and down completely randomly.

Pair Corralation between Home Depot and FANH Old

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.3 times more return on investment than FANH Old. However, Home Depot is 3.28 times less risky than FANH Old. It trades about 0.05 of its potential returns per unit of risk. FANH Old is currently generating about -0.06 per unit of risk. If you would invest  29,523  in Home Depot on October 10, 2024 and sell it today you would earn a total of  8,900  from holding Home Depot or generate 30.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.9%
Values	Daily Returns

Home Depot  vs.  FANH Old

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.

FANH Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FANH Old has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Home Depot and FANH Old

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

The idea behind Home Depot and FANH Old 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.