Correlation Between Home Depot and CAIRN HOMES

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

Diversification Opportunities for Home Depot and CAIRN HOMES

-0.24

Correlation Coefficient

Home Depot  CAIRN HOMES

Very good diversification

The 3 months correlation between Home and CAIRN is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and CAIRN HOMES EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAIRN HOMES EO 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 CAIRN HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAIRN HOMES EO has no effect on the direction of Home Depot i.e., Home Depot and CAIRN HOMES go up and down completely randomly.

Pair Corralation between Home Depot and CAIRN HOMES

Assuming the 90 days trading horizon The Home Depot is expected to generate 0.53 times more return on investment than CAIRN HOMES. However, The Home Depot is 1.88 times less risky than CAIRN HOMES. It trades about 0.2 of its potential returns per unit of risk. CAIRN HOMES EO is currently generating about -0.27 per unit of risk. If you would invest  37,790  in The Home Depot on October 25, 2024 and sell it today you would earn a total of  1,745  from holding The Home Depot or generate 4.62% return on investment over 90 days.

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

The Home Depot  vs.  CAIRN HOMES EO

Home Depot

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CAIRN HOMES EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAIRN HOMES EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CAIRN HOMES is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home Depot and CAIRN HOMES

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

The idea behind The Home Depot and CAIRN HOMES EO 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.