Correlation Between Home Depot and NextSource Materials
Can any of the company-specific risk be diversified away by investing in both Home Depot and NextSource Materials 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 NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and NextSource Materials, you can compare the effects of market volatilities on Home Depot and NextSource Materials 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 NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and NextSource Materials.
Diversification Opportunities for Home Depot and NextSource Materials
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Home and NextSource is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Home Depot i.e., Home Depot and NextSource Materials go up and down completely randomly.
Pair Corralation between Home Depot and NextSource Materials
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.31 times more return on investment than NextSource Materials. However, Home Depot is 3.19 times less risky than NextSource Materials. It trades about 0.24 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.05 per unit of risk. If you would invest 36,361 in Home Depot on September 8, 2024 and sell it today you would earn a total of 6,776 from holding Home Depot or generate 18.64% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Home Depot vs. NextSource Materials
Performance |
Timeline |
Home Depot |
NextSource Materials |
Home Depot and NextSource Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Home Depot and NextSource Materials
The main advantage of trading using opposite Home Depot and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, NextSource Materials 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 NextSource Materials will offset losses from the drop in NextSource Materials' long position.Home Depot vs. Coca Cola Consolidated | Home Depot vs. SEI Investments | Home Depot vs. Embecta Corp | Home Depot vs. Coca Cola Femsa SAB |
NextSource Materials vs. Leading Edge Materials | NextSource Materials vs. Syrah Resources Limited | NextSource Materials vs. Mason Graphite | NextSource Materials vs. Graphite One |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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