Correlation Between Home Depot and IShares Cybersecurity

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

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

Diversification Opportunities for Home Depot and IShares Cybersecurity

0.72

Correlation Coefficient

Home Depot  IShares Cybersecurity

Poor diversification

The 3 months correlation between Home and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and iShares Cybersecurity and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Cybersecurity and 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 IShares Cybersecurity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Cybersecurity and has no effect on the direction of Home Depot i.e., Home Depot and IShares Cybersecurity go up and down completely randomly.

Pair Corralation between Home Depot and IShares Cybersecurity

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.07 times more return on investment than IShares Cybersecurity. However, Home Depot is 1.07 times more volatile than iShares Cybersecurity and. It trades about 0.15 of its potential returns per unit of risk. iShares Cybersecurity and is currently generating about 0.11 per unit of risk. If you would invest  37,800  in Home Depot on September 13, 2024 and sell it today you would earn a total of  4,338  from holding Home Depot or generate 11.48% return on investment over 90 days.

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

Home Depot  vs.  iShares Cybersecurity and

Home Depot

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Cybersecurity and

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Cybersecurity and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, IShares Cybersecurity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Depot and IShares Cybersecurity

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

The idea behind Home Depot and iShares Cybersecurity and 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..