Correlation Between Hostess Brands and Home Depot

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

Diversification Opportunities for Hostess Brands and Home Depot

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  Correlation Coefficient

Pay attention - limited upside

The 1 month correlation between Hostess and Home is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Hostess Brands and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Hostess Brands 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 Hostess Brands 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 Hostess Brands i.e., Hostess Brands and Home Depot go up and down completely randomly.

Pair Corralation between Hostess Brands and Home Depot

If you would invest  29,527  in Home Depot on December 29, 2023 and sell it today you would earn a total of  8,833  from holding Home Depot or generate 29.91% return on investment over 90 days.
Time Period1 Month [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.2%
ValuesDaily Returns

Hostess Brands  vs.  Home Depot

 Performance 
       Timeline  
Hostess Brands 

Risk-Adjusted Performance

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Over the last 90 days Hostess Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward-looking signals, Hostess Brands is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Home Depot 

Risk-Adjusted Performance

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Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 8 (%) 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.

Hostess Brands and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hostess Brands and Home Depot

The main advantage of trading using opposite Hostess Brands and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hostess Brands 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 Hostess Brands 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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