Correlation Between Monks Investment and Home Depot

Can any of the company-specific risk be diversified away by investing in both Monks Investment 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 Monks Investment and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Monks Investment Trust and Home Depot, you can compare the effects of market volatilities on Monks Investment 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 Monks Investment with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monks Investment and Home Depot.

Diversification Opportunities for Monks Investment and Home Depot

0.7

Correlation Coefficient

Monks Investment  Home Depot

Poor diversification

The 3 months correlation between Monks and Home is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Monks Investment 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 Monks Investment 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 Monks Investment i.e., Monks Investment and Home Depot go up and down completely randomly.

Pair Corralation between Monks Investment and Home Depot

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 5.16 times more return on investment than Home Depot. However, Monks Investment is 5.16 times more volatile than Home Depot. It trades about 0.16 of its potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of risk. If you would invest  114,800  in Monks Investment Trust on September 21, 2024 and sell it today you would earn a total of  10,400  from holding Monks Investment Trust or generate 9.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Monks Investment Trust  vs.  Home Depot

Monks Investment Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Monks Investment and Home Depot

The main advantage of trading using opposite Monks Investment and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.