Correlation Between International Business and HOME DEPOT

Can any of the company-specific risk be diversified away by investing in both International Business and HOME DEPOT 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 International Business and HOME DEPOT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Business Machines and HOME DEPOT CDR, you can compare the effects of market volatilities on International Business and HOME DEPOT 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 International Business with a short position of HOME DEPOT. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and HOME DEPOT.

Diversification Opportunities for International Business and HOME DEPOT

0.69

Correlation Coefficient

International Business  HOME DEPOT

Poor diversification

The 3 months correlation between International and HOME is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and HOME DEPOT CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT CDR and International Business 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 International Business Machines are associated (or correlated) with HOME DEPOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOME DEPOT CDR has no effect on the direction of International Business i.e., International Business and HOME DEPOT go up and down completely randomly.

Pair Corralation between International Business and HOME DEPOT

Assuming the 90 days trading horizon International Business Machines is expected to generate 1.13 times more return on investment than HOME DEPOT. However, International Business is 1.13 times more volatile than HOME DEPOT CDR. It trades about 0.33 of its potential returns per unit of risk. HOME DEPOT CDR is currently generating about 0.0 per unit of risk. If you would invest  3,200  in International Business Machines on September 18, 2024 and sell it today you would earn a total of  318.00  from holding International Business Machines or generate 9.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

International Business Machine  vs.  HOME DEPOT CDR

International Business

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HOME DEPOT CDR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HOME DEPOT CDR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, HOME DEPOT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with International Business and HOME DEPOT

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

The idea behind International Business Machines and HOME DEPOT CDR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.