Correlation Between Home Depot and Applied Genetic

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

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

Diversification Opportunities for Home Depot and Applied Genetic

-0.69

Correlation Coefficient

Home Depot  Applied Genetic

Excellent diversification

The 3 months correlation between Home and Applied is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Applied Genetic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Genetic and Home Depot 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 Home Depot are associated (or correlated) with Applied Genetic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Genetic has no effect on the direction of Home Depot i.e., Home Depot and Applied Genetic go up and down completely randomly.

Pair Corralation between Home Depot and Applied Genetic

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.18 times more return on investment than Applied Genetic. However, Home Depot is 5.64 times less risky than Applied Genetic. It trades about 0.02 of its potential returns per unit of risk. Applied Genetic is currently generating about -0.03 per unit of risk. If you would invest  29,138  in Home Depot on February 23, 2024 and sell it today you would earn a total of  3,551  from holding Home Depot or generate 12.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.81%
Values	Daily Returns

Home Depot  vs.  Applied Genetic

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 latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Applied Genetic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Genetic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Applied Genetic is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Home Depot and Applied Genetic

The main advantage of trading using opposite Home Depot and Applied Genetic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Applied Genetic 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 Applied Genetic will offset losses from the drop in Applied Genetic's long position.

The idea behind Home Depot and Applied Genetic 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.