Correlation Between High Yield and Home Depot

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

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

Diversification Opportunities for High Yield and Home Depot

0.65

Correlation Coefficient

High Yield  Home Depot

Poor diversification

The 3 months correlation between High and Home is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and High Yield 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 High Yield Municipal Fund 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 High Yield i.e., High Yield and Home Depot go up and down completely randomly.

Pair Corralation between High Yield and Home Depot

Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 0.18 times more return on investment than Home Depot. However, High Yield Municipal Fund is 5.64 times less risky than Home Depot. It trades about -0.2 of its potential returns per unit of risk. Home Depot is currently generating about -0.42 per unit of risk. If you would invest  880.00  in High Yield Municipal Fund on January 20, 2024 and sell it today you would lose (10.00) from holding High Yield Municipal Fund or give up 1.14% of portfolio value over 90 days.

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

High Yield Municipal Fund  vs.  Home Depot

High Yield Municipal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with High Yield and Home Depot

The main advantage of trading using opposite High Yield and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield 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 High Yield Municipal Fund 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.