Correlation Between Home Depot and Ultrashort Dow

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

By analyzing existing cross correlation between Home Depot and Ultrashort Dow 30, you can compare the effects of market volatilities on Home Depot and Ultrashort Dow 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 Ultrashort Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Ultrashort Dow.

Diversification Opportunities for Home Depot and Ultrashort Dow

-0.71

Correlation Coefficient

Home Depot  Ultrashort Dow

Pay attention - limited upside

The 3 months correlation between Home and Ultrashort is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Ultrashort Dow 30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Dow 30 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 Ultrashort Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Dow 30 has no effect on the direction of Home Depot i.e., Home Depot and Ultrashort Dow go up and down completely randomly.

Pair Corralation between Home Depot and Ultrashort Dow

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.91 times more return on investment than Ultrashort Dow. However, Home Depot is 1.1 times less risky than Ultrashort Dow. It trades about 0.05 of its potential returns per unit of risk. Ultrashort Dow 30 is currently generating about -0.07 per unit of risk. If you would invest  31,838  in Home Depot on October 4, 2024 and sell it today you would earn a total of  7,008  from holding Home Depot or generate 22.01% 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.  Ultrashort Dow 30

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

Ultrashort Dow 30

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Dow 30 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ultrashort Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Ultrashort Dow

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

The idea behind Home Depot and Ultrashort Dow 30 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.