Correlation Between Home Depot and Ab Municipal

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

Diversification Opportunities for Home Depot and Ab Municipal

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and AVAAX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Ab Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Municipal Income 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 Ab Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Municipal Income has no effect on the direction of Home Depot i.e., Home Depot and Ab Municipal go up and down completely randomly.

Pair Corralation between Home Depot and Ab Municipal

Allowing for the 90-day total investment horizon Home Depot is expected to generate 8.06 times more return on investment than Ab Municipal. However, Home Depot is 8.06 times more volatile than Ab Municipal Income. It trades about 0.02 of its potential returns per unit of risk. Ab Municipal Income is currently generating about -0.32 per unit of risk. If you would invest  28,954  in Home Depot on July 8, 2022 and sell it today you would earn a total of  85.00  from holding Home Depot or generate 0.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Ab Municipal Income

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot Price Channel

Ab Municipal Income 
AVAAX Performance
0 of 100
Over the last 90 days Ab Municipal Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab Municipal is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AVAAX Price Channel

Home Depot and Ab Municipal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Ab Municipal

The main advantage of trading using opposite Home Depot and Ab Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Ab Municipal 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 Ab Municipal will offset losses from the drop in Ab Municipal's long position.
Home Depot vs. Amazon Inc
The idea behind Home Depot and Ab Municipal Income 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.
Ab Municipal vs. Hp Inc
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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