Correlation Between Home Depot and TT Electronics

Can any of the company-specific risk be diversified away by investing in both Home Depot and TT Electronics 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 TT Electronics 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 TT Electronics PLC, you can compare the effects of market volatilities on Home Depot and TT Electronics 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 TT Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and TT Electronics.

Diversification Opportunities for Home Depot and TT Electronics

0.76

Correlation Coefficient

Home Depot  TT Electronics

Poor diversification

The 3 months correlation between Home and 7TT is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and TT Electronics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TT Electronics PLC 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 TT Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TT Electronics PLC has no effect on the direction of Home Depot i.e., Home Depot and TT Electronics go up and down completely randomly.

Pair Corralation between Home Depot and TT Electronics

Assuming the 90 days trading horizon The Home Depot is expected to generate 0.44 times more return on investment than TT Electronics. However, The Home Depot is 2.29 times less risky than TT Electronics. It trades about 0.06 of its potential returns per unit of risk. TT Electronics PLC is currently generating about -0.01 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	Significant
Accuracy	100.0%
Values	Daily Returns

The Home Depot  vs.  TT Electronics PLC

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.

TT Electronics PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TT Electronics PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, TT Electronics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and TT Electronics

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

The idea behind The Home Depot and TT Electronics PLC 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.