Correlation Between Home Depot and American Beacon

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

Diversification Opportunities for Home Depot and American Beacon

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between Home Depot and American is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and American Beacon Mid-Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Mid-Cap 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Mid-Cap has no effect on the direction of Home Depot i.e., Home Depot and American Beacon go up and down completely randomly.

Pair Corralation between Home Depot and American Beacon

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.64 times more return on investment than American Beacon. However, Home Depot is 1.56 times less risky than American Beacon. It trades about 0.02 of its potential returns per unit of risk. American Beacon Mid-Cap is currently generating about 0.0 per unit of risk. If you would invest  30,242  in Home Depot on August 28, 2022 and sell it today you would earn a total of  2,396  from holding Home Depot or generate 7.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy98.93%
ValuesDaily Returns

Home Depot  vs.  American Beacon Mid-Cap

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Home Depot Price Channel

American Beacon Mid-Cap 
American Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Mid-Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in December 2022.

American Price Channel

Home Depot and American Beacon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and American Beacon

The main advantage of trading using opposite Home Depot and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.
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The idea behind Home Depot and American Beacon Mid-Cap 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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