Correlation Between KINDER and Home Depot

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

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

Diversification Opportunities for KINDER and Home Depot

0.07

Correlation Coefficient

KINDER  Home Depot

Significant diversification

The 3 months correlation between KINDER and Home is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding KINDER MORGAN ENERGY and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and KINDER 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 KINDER MORGAN ENERGY 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 KINDER i.e., KINDER and Home Depot go up and down completely randomly.

Pair Corralation between KINDER and Home Depot

Assuming the 90 days trading horizon KINDER is expected to generate 4.66 times less return on investment than Home Depot. But when comparing it to its historical volatility, KINDER MORGAN ENERGY is 1.06 times less risky than Home Depot. It trades about 0.01 of its potential returns per unit of risk. Home Depot is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  32,341  in Home Depot on October 5, 2024 and sell it today you would earn a total of  6,505  from holding Home Depot or generate 20.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.36%
Values	Daily Returns

KINDER MORGAN ENERGY  vs.  Home Depot

KINDER MORGAN ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KINDER MORGAN ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Home Depot

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KINDER and Home Depot

The main advantage of trading using opposite KINDER and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KINDER 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 KINDER MORGAN ENERGY 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 Stocks Directory module to find actively traded stocks across global markets.