Correlation Between North American and Home Depot
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and The Home Depot, you can compare the effects of market volatilities on North American 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 North American with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Home Depot.
Diversification Opportunities for North American and Home Depot
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between North and Home is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and North American 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 North American Construction 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 North American i.e., North American and Home Depot go up and down completely randomly.
Pair Corralation between North American and Home Depot
Assuming the 90 days horizon North American Construction is expected to generate 2.33 times more return on investment than Home Depot. However, North American is 2.33 times more volatile than The Home Depot. It trades about 0.21 of its potential returns per unit of risk. The Home Depot is currently generating about -0.37 per unit of risk. If you would invest 1,910 in North American Construction on October 8, 2024 and sell it today you would earn a total of 190.00 from holding North American Construction or generate 9.95% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
North American Construction vs. The Home Depot
Performance |
Timeline |
North American Const |
Home Depot |
North American and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with North American and Home Depot
The main advantage of trading using opposite North American and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.North American vs. Superior Plus Corp | North American vs. NMI Holdings | North American vs. SIVERS SEMICONDUCTORS AB | North American vs. Talanx AG |
Home Depot vs. Superior Plus Corp | Home Depot vs. NMI Holdings | Home Depot vs. SIVERS SEMICONDUCTORS AB | Home Depot vs. Talanx AG |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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