Correlation Between Home Depot and CITY OFFICE

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

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

Diversification Opportunities for Home Depot and CITY OFFICE

0.43

Correlation Coefficient

Home Depot  CITY OFFICE

Very weak diversification

The 3 months correlation between Home and CITY is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and CITY OFFICE REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITY OFFICE REIT 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 The Home Depot are associated (or correlated) with CITY OFFICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITY OFFICE REIT has no effect on the direction of Home Depot i.e., Home Depot and CITY OFFICE go up and down completely randomly.

Pair Corralation between Home Depot and CITY OFFICE

Assuming the 90 days trading horizon The Home Depot is expected to generate 0.38 times more return on investment than CITY OFFICE. However, The Home Depot is 2.62 times less risky than CITY OFFICE. It trades about 0.06 of its potential returns per unit of risk. CITY OFFICE REIT is currently generating about 0.0 per unit of risk. If you would invest  27,166  in The Home Depot on October 11, 2024 and sell it today you would earn a total of  10,319  from holding The Home Depot or generate 37.98% return on investment over 90 days.

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

The Home Depot  vs.  CITY OFFICE REIT

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Home Depot is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CITY OFFICE REIT

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CITY OFFICE REIT are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITY OFFICE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and CITY OFFICE

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

The idea behind The Home Depot and CITY OFFICE REIT 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..