Correlation Between Home Depot and CHINA SOUTHN

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

Diversification Opportunities for Home Depot and CHINA SOUTHN

0.5

Correlation Coefficient

Home Depot  CHINA SOUTHN

Very weak diversification

The 3 months correlation between Home and CHINA is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of Home Depot i.e., Home Depot and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between Home Depot and CHINA SOUTHN

Assuming the 90 days trading horizon Home Depot is expected to generate 3.31 times less return on investment than CHINA SOUTHN. But when comparing it to its historical volatility, The Home Depot is 2.2 times less risky than CHINA SOUTHN. It trades about 0.09 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  37.00  in CHINA SOUTHN AIR H on October 26, 2024 and sell it today you would earn a total of  9.00  from holding CHINA SOUTHN AIR H or generate 24.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

The Home Depot  vs.  CHINA SOUTHN AIR H

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.

CHINA SOUTHN AIR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and CHINA SOUTHN

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

The idea behind The Home Depot and CHINA SOUTHN AIR H 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.