Correlation Between Home Depot and Chembio Diagnostics

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

Diversification Opportunities for Home Depot and Chembio Diagnostics

-0.26
  Correlation Coefficient

Very good diversification

The 3 months correlation between Home Depot and Chembio is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Chembio Diagnostics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chembio Diagnostics 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 Chembio Diagnostics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chembio Diagnostics has no effect on the direction of Home Depot i.e., Home Depot and Chembio Diagnostics go up and down completely randomly.

Pair Corralation between Home Depot and Chembio Diagnostics

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.26 times more return on investment than Chembio Diagnostics. However, Home Depot is 3.85 times less risky than Chembio Diagnostics. It trades about 0.08 of its potential returns per unit of risk. Chembio Diagnostics is currently generating about -0.06 per unit of risk. If you would invest  28,020  in Home Depot on September 3, 2022 and sell it today you would earn a total of  4,687  from holding Home Depot or generate 16.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.07%
ValuesDaily Returns

Home Depot  vs.  Chembio Diagnostics

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot Price Channel

Chembio Diagnostics 
Chembio Performance
0 of 100
Over the last 90 days Chembio Diagnostics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Chembio Price Channel

Home Depot and Chembio Diagnostics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Chembio Diagnostics

The main advantage of trading using opposite Home Depot and Chembio Diagnostics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Chembio Diagnostics 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 Chembio Diagnostics will offset losses from the drop in Chembio Diagnostics' long position.
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The idea behind Home Depot and Chembio Diagnostics 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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