Correlation Between Home Depot and ECD Automotive

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

By analyzing existing cross correlation between Home Depot and ECD Automotive Design, you can compare the effects of market volatilities on Home Depot and ECD Automotive 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 ECD Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and ECD Automotive.

Diversification Opportunities for Home Depot and ECD Automotive

-0.69

Correlation Coefficient

Home Depot  ECD Automotive

Excellent diversification

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

Pair Corralation between Home Depot and ECD Automotive

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.2 times more return on investment than ECD Automotive. However, Home Depot is 4.91 times less risky than ECD Automotive. It trades about 0.12 of its potential returns per unit of risk. ECD Automotive Design is currently generating about -0.03 per unit of risk. If you would invest  33,793  in Home Depot on February 13, 2024 and sell it today you would earn a total of  850.00  from holding Home Depot or generate 2.52% return on investment over 90 days.

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

Home Depot  vs.  ECD Automotive Design

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.

ECD Automotive Design

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ECD Automotive Design are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, ECD Automotive sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and ECD Automotive

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

The idea behind Home Depot and ECD Automotive Design 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 CEOs Directory module to screen CEOs from public companies around the world.