Correlation Between Metalrgica Riosulense and Home Depot

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

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

Diversification Opportunities for Metalrgica Riosulense and Home Depot

-0.85

Correlation Coefficient

Metalrgica Riosulense  Home Depot

Pay attention - limited upside

The 3 months correlation between Metalrgica and Home is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Metalrgica Riosulense SA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Metalrgica Riosulense 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 Metalrgica Riosulense SA 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 Metalrgica Riosulense i.e., Metalrgica Riosulense and Home Depot go up and down completely randomly.

Pair Corralation between Metalrgica Riosulense and Home Depot

Assuming the 90 days trading horizon Metalrgica Riosulense SA is expected to under-perform the Home Depot. In addition to that, Metalrgica Riosulense is 1.14 times more volatile than The Home Depot. It trades about -0.21 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.24 per unit of volatility. If you would invest  7,477  in The Home Depot on September 12, 2024 and sell it today you would earn a total of  1,586  from holding The Home Depot or generate 21.21% return on investment over 90 days.

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

Metalrgica Riosulense SA  vs.  The Home Depot

Metalrgica Riosulense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalrgica Riosulense SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Home Depot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Home Depot sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalrgica Riosulense and Home Depot

The main advantage of trading using opposite Metalrgica Riosulense and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metalrgica Riosulense 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 Metalrgica Riosulense SA and The 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.