Correlation Between Home Depot and Emerson Radio

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

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

Diversification Opportunities for Home Depot and Emerson Radio

-0.29

Correlation Coefficient

Home Depot  Emerson Radio

Very good diversification

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

Pair Corralation between Home Depot and Emerson Radio

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Emerson Radio. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.28 times less risky than Emerson Radio. The stock trades about -0.42 of its potential returns per unit of risk. The Emerson Radio is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  43.00  in Emerson Radio on October 7, 2024 and sell it today you would earn a total of  0.00  from holding Emerson Radio or generate 0.0% return on investment over 90 days.

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

Home Depot  vs.  Emerson Radio

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Home Depot and Emerson Radio

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

The idea behind Home Depot and Emerson Radio 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.