Correlation Between 1st Colonial and Home Depot
Can any of the company-specific risk be diversified away by investing in both 1st Colonial 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 1st Colonial and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 1st Colonial Bancorp and Home Depot, you can compare the effects of market volatilities on 1st Colonial 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 1st Colonial with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Colonial and Home Depot.
Diversification Opportunities for 1st Colonial and Home Depot
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between 1st and Home is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding 1st Colonial Bancorp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and 1st Colonial 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 1st Colonial Bancorp 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 1st Colonial i.e., 1st Colonial and Home Depot go up and down completely randomly.
Pair Corralation between 1st Colonial and Home Depot
Given the investment horizon of 90 days 1st Colonial Bancorp is expected to generate 1.39 times more return on investment than Home Depot. However, 1st Colonial is 1.39 times more volatile than Home Depot. It trades about 0.02 of its potential returns per unit of risk. Home Depot is currently generating about 0.03 per unit of risk. If you would invest 1,395 in 1st Colonial Bancorp on January 17, 2024 and sell it today you would earn a total of 125.00 from holding 1st Colonial Bancorp or generate 8.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.68% |
| Values | Daily Returns |
1st Colonial Bancorp vs. Home Depot
Performance |
| Timeline |
| 1st Colonial Bancorp |
| Home Depot |
1st Colonial and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 1st Colonial and Home Depot
The main advantage of trading using opposite 1st Colonial and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Colonial 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 1st Colonial Bancorp 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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