Correlation Between Partner Communications and Home Depot

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

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

Diversification Opportunities for Partner Communications and Home Depot

-0.02

Correlation Coefficient

Partner Communications  Home Depot

Good diversification

The 3 months correlation between Partner and Home is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Partner Communications and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Partner Communications 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 Partner Communications 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 Partner Communications i.e., Partner Communications and Home Depot go up and down completely randomly.

Pair Corralation between Partner Communications and Home Depot

Assuming the 90 days horizon Partner Communications is expected to generate 3.95 times more return on investment than Home Depot. However, Partner Communications is 3.95 times more volatile than Home Depot. It trades about 0.12 of its potential returns per unit of risk. Home Depot is currently generating about -0.08 per unit of risk. If you would invest  498.00  in Partner Communications on December 27, 2024 and sell it today you would earn a total of  204.00  from holding Partner Communications or generate 40.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Partner Communications  vs.  Home Depot

Partner Communications

Risk-Adjusted Performance

OK

Over the last 90 days Partner Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Partner Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Partner Communications and Home Depot

The main advantage of trading using opposite Partner Communications and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Partner Communications 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 Partner Communications 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.