Correlation Between MTY Food and HOME DEPOT

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

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

Diversification Opportunities for MTY Food and HOME DEPOT

0.84

Correlation Coefficient

MTY Food  HOME DEPOT

Very poor diversification

The 3 months correlation between MTY and HOME is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding MTY Food Group 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 MTY Food 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 MTY Food Group 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 MTY Food i.e., MTY Food and HOME DEPOT go up and down completely randomly.

Pair Corralation between MTY Food and HOME DEPOT

Assuming the 90 days trading horizon MTY Food Group is expected to generate 1.7 times more return on investment than HOME DEPOT. However, MTY Food is 1.7 times more volatile than HOME DEPOT CDR. It trades about -0.03 of its potential returns per unit of risk. HOME DEPOT CDR is currently generating about -0.07 per unit of risk. If you would invest  4,536  in MTY Food Group on December 28, 2024 and sell it today you would lose (308.00) from holding MTY Food Group or give up 6.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

MTY Food Group  vs.  HOME DEPOT CDR

MTY Food Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days MTY Food Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, MTY Food is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

HOME DEPOT CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days HOME DEPOT CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MTY Food and HOME DEPOT

The main advantage of trading using opposite MTY Food and HOME DEPOT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTY Food 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 MTY Food Group 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.