Correlation Between Home Depot and B of A

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

Diversification Opportunities for Home Depot and B of A

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Home Depot and B of A is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America 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 B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of Home Depot i.e., Home Depot and B of A go up and down completely randomly.

Pair Corralation between Home Depot and B of A

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.46 times less return on investment than B of A. But when comparing it to its historical volatility, Home Depot is 1.8 times less risky than B of A. It trades about 0.35 of its potential returns per unit of risk. Bank Of America is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,136  in Bank Of America on May 13, 2022 and sell it today you would earn a total of  465.00  from holding Bank Of America or generate 14.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Bank Of America

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Home Depot Price Channel

Bank Of America 
B of A Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Home Depot and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and B of A

The main advantage of trading using opposite Home Depot and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, B of A 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 B of A will offset losses from the drop in B of A's long position.
The idea behind Home Depot and Bank Of America 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.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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