Correlation Between Home Depot and Fras Le

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

Diversification Opportunities for Home Depot and Fras Le

0.44

Correlation Coefficient

Home Depot  Fras Le

Very weak diversification

The 3 months correlation between Home and Fras is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Fras le SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fras le SA 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 Fras Le. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fras le SA has no effect on the direction of Home Depot i.e., Home Depot and Fras Le go up and down completely randomly.

Pair Corralation between Home Depot and Fras Le

Assuming the 90 days trading horizon The Home Depot is expected to generate 0.87 times more return on investment than Fras Le. However, The Home Depot is 1.15 times less risky than Fras Le. It trades about 0.29 of its potential returns per unit of risk. Fras le SA is currently generating about 0.04 per unit of risk. If you would invest  7,289  in The Home Depot on September 3, 2024 and sell it today you would earn a total of  1,788  from holding The Home Depot or generate 24.53% 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.  Fras le SA

Home Depot

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Home Depot sustained solid returns over the last few months and may actually be approaching a breakup point.

Fras le SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fras le SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fras Le is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Depot and Fras Le

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

The idea behind The Home Depot and Fras le SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.