Correlation Between Home Depot and U Power

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

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

Diversification Opportunities for Home Depot and U Power

-0.4

Correlation Coefficient

Home Depot  U Power

Very good diversification

The 3 months correlation between Home and UCAR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and U Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U Power Limited 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 U Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U Power Limited has no effect on the direction of Home Depot i.e., Home Depot and U Power go up and down completely randomly.

Pair Corralation between Home Depot and U Power

Allowing for the 90-day total investment horizon Home Depot is expected to generate 17.67 times less return on investment than U Power. But when comparing it to its historical volatility, Home Depot is 44.24 times less risky than U Power. It trades about 0.08 of its potential returns per unit of risk. U Power Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  37,200  in U Power Limited on September 26, 2024 and sell it today you would lose (36,550) from holding U Power Limited or give up 98.25% of portfolio value over 90 days.

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

Home Depot  vs.  U Power Limited

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.

U Power Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days U Power Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, U Power is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Home Depot and U Power

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

The idea behind Home Depot and U Power Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.