Correlation Between Home Depot and Timothy Plan

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

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

Diversification Opportunities for Home Depot and Timothy Plan

0.88

Correlation Coefficient

Home Depot  Timothy Plan

Very poor diversification

The 3 months correlation between Home and Timothy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Timothy Plan LargeMid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timothy Plan LargeMid 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 Timothy Plan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timothy Plan LargeMid has no effect on the direction of Home Depot i.e., Home Depot and Timothy Plan go up and down completely randomly.

Pair Corralation between Home Depot and Timothy Plan

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Timothy Plan. In addition to that, Home Depot is 1.64 times more volatile than Timothy Plan LargeMid. It trades about -0.09 of its total potential returns per unit of risk. Timothy Plan LargeMid is currently generating about -0.02 per unit of volatility. If you would invest  4,351  in Timothy Plan LargeMid on December 26, 2024 and sell it today you would lose (46.00) from holding Timothy Plan LargeMid or give up 1.06% of portfolio value over 90 days.

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

Home Depot  vs.  Timothy Plan LargeMid

Home Depot

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Timothy Plan LargeMid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Timothy Plan LargeMid has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Timothy Plan is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Home Depot and Timothy Plan

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

The idea behind Home Depot and Timothy Plan LargeMid 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 Transaction History module to view history of all your transactions and understand their impact on performance.