Correlation Between Home Depot and BII Railway

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

Diversification Opportunities for Home Depot and BII Railway

-0.37

Correlation Coefficient

Home Depot  BII Railway

Very good diversification

The 3 months correlation between Home and BII is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor 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 BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of Home Depot i.e., Home Depot and BII Railway go up and down completely randomly.

Pair Corralation between Home Depot and BII Railway

Assuming the 90 days trading horizon The Home Depot is expected to generate 0.8 times more return on investment than BII Railway. However, The Home Depot is 1.24 times less risky than BII Railway. It trades about 0.09 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.06 per unit of risk. If you would invest  37,018  in The Home Depot on October 26, 2024 and sell it today you would earn a total of  2,567  from holding The Home Depot or generate 6.93% 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.  BII Railway Transportation

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 uncertain forward indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BII Railway Transpor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BII Railway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Home Depot and BII Railway

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

The idea behind The Home Depot and BII Railway Transportation 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.