Correlation Between Home Depot and Knight Therapeutics

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

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

Diversification Opportunities for Home Depot and Knight Therapeutics

0.09

Correlation Coefficient

Home Depot  Knight Therapeutics

Significant diversification

The 3 months correlation between Home and Knight is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Knight Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Therapeutics 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 Knight Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Therapeutics has no effect on the direction of Home Depot i.e., Home Depot and Knight Therapeutics go up and down completely randomly.

Pair Corralation between Home Depot and Knight Therapeutics

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.04 times less return on investment than Knight Therapeutics. But when comparing it to its historical volatility, Home Depot is 1.43 times less risky than Knight Therapeutics. It trades about 0.23 of its potential returns per unit of risk. Knight Therapeutics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  361.00  in Knight Therapeutics on October 22, 2024 and sell it today you would earn a total of  15.00  from holding Knight Therapeutics or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Home Depot  vs.  Knight Therapeutics

Home Depot

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Knight Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knight Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Home Depot and Knight Therapeutics

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

The idea behind Home Depot and Knight Therapeutics 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.