Correlation Between International Biotechnology and Home Depot

Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 Biotechnology 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 Biotechnology Trust and Home Depot, you can compare the effects of market volatilities on International Biotechnology 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 Biotechnology with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Home Depot.

Diversification Opportunities for International Biotechnology and Home Depot

0.42

Correlation Coefficient

International Biotechnology  Home Depot

Very weak diversification

The 3 months correlation between International and Home is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and International Biotechnology 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 Biotechnology Trust 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 has no effect on the direction of International Biotechnology i.e., International Biotechnology and Home Depot go up and down completely randomly.

Pair Corralation between International Biotechnology and Home Depot

Assuming the 90 days trading horizon International Biotechnology Trust is expected to generate 6.6 times more return on investment than Home Depot. However, International Biotechnology is 6.6 times more volatile than Home Depot. It trades about 0.06 of its potential returns per unit of risk. Home Depot is currently generating about 0.16 per unit of risk. If you would invest  66,995  in International Biotechnology Trust on October 6, 2024 and sell it today you would earn a total of  2,005  from holding International Biotechnology Trust or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.56%
Values	Daily Returns

International Biotechnology Tr  vs.  Home Depot

International Biotechnology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Biotechnology Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, International Biotechnology is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with International Biotechnology and Home Depot

The main advantage of trading using opposite International Biotechnology and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 Biotechnology Trust and Home Depot 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.