Correlation Between BankInvest Optima and Home Depot

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Can any of the company-specific risk be diversified away by investing in both BankInvest Optima 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 BankInvest Optima and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BankInvest Optima 30 and Home Depot, you can compare the effects of market volatilities on BankInvest Optima 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 BankInvest Optima with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of BankInvest Optima and Home Depot.

Diversification Opportunities for BankInvest Optima and Home Depot

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between BankInvest and Home is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BankInvest Optima 30 and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and BankInvest Optima 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 BankInvest Optima 30 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 BankInvest Optima i.e., BankInvest Optima and Home Depot go up and down completely randomly.

Pair Corralation between BankInvest Optima and Home Depot

Assuming the 90 days trading horizon BankInvest Optima is expected to generate 3.1 times less return on investment than Home Depot. But when comparing it to its historical volatility, BankInvest Optima 30 is 3.26 times less risky than Home Depot. It trades about 0.11 of its potential returns per unit of risk. Home Depot is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  28,733  in Home Depot on December 30, 2023 and sell it today you would earn a total of  9,627  from holding Home Depot or generate 33.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.79%
ValuesDaily Returns

BankInvest Optima 30  vs.  Home Depot

 Performance 
       Timeline  
BankInvest Optima 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in BankInvest Optima 30 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, BankInvest Optima is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Home Depot 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in April 2024.

BankInvest Optima and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BankInvest Optima and Home Depot

The main advantage of trading using opposite BankInvest Optima and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BankInvest Optima 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 BankInvest Optima 30 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.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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