Correlation Between Tree Island and HOME DEPOT

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

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

Diversification Opportunities for Tree Island and HOME DEPOT

0.51

Correlation Coefficient

Tree Island  HOME DEPOT

Very weak diversification

The 3 months correlation between Tree and HOME is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel 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 Tree Island 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 Tree Island Steel 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 Tree Island i.e., Tree Island and HOME DEPOT go up and down completely randomly.

Pair Corralation between Tree Island and HOME DEPOT

Assuming the 90 days trading horizon Tree Island is expected to generate 2.21 times less return on investment than HOME DEPOT. In addition to that, Tree Island is 1.81 times more volatile than HOME DEPOT CDR. It trades about 0.03 of its total potential returns per unit of risk. HOME DEPOT CDR is currently generating about 0.1 per unit of volatility. If you would invest  2,153  in HOME DEPOT CDR on September 29, 2024 and sell it today you would earn a total of  378.00  from holding HOME DEPOT CDR or generate 17.56% return on investment over 90 days.

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

Tree Island Steel  vs.  HOME DEPOT CDR

Tree Island Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

HOME DEPOT CDR

Risk-Adjusted Performance

0 of 100

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 very healthy basic indicators, HOME DEPOT is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tree Island and HOME DEPOT

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

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.