Correlation Between Home Depot and BRASIL ON

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

Diversification Opportunities for Home Depot and BRASIL ON

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and BRASIL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and BRASIL ON NM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRASIL ON NM 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 BRASIL ON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRASIL ON NM has no effect on the direction of Home Depot i.e., Home Depot and BRASIL ON go up and down completely randomly.

Pair Corralation between Home Depot and BRASIL ON

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.77 times less return on investment than BRASIL ON. But when comparing it to its historical volatility, Home Depot is 1.2 times less risky than BRASIL ON. It trades about 0.26 of its potential returns per unit of risk. BRASIL ON NM is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  3,413  in BRASIL ON NM on May 17, 2022 and sell it today you would earn a total of  997.00  from holding BRASIL ON NM or generate 29.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy97.62%
ValuesDaily Returns

Home Depot  vs.  BRASIL ON NM

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 4 (%) 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

BRASIL ON NM 
BRASIL Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in BRASIL ON NM are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BRASIL ON reported solid returns over the last few months and may actually be approaching a breakup point.

BRASIL Price Channel

Home Depot and BRASIL ON Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and BRASIL ON

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

BRASIL ON NM

Pair trading matchups for BRASIL ON

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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