Correlation Between Home Depot and Amdocs

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

Diversification Opportunities for Home Depot and Amdocs

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Home Depot and Amdocs is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Amdocs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amdocs 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 Amdocs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amdocs has no effect on the direction of Home Depot i.e., Home Depot and Amdocs go up and down completely randomly.

Pair Corralation between Home Depot and Amdocs

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.18 times more return on investment than Amdocs. However, Home Depot is 2.18 times more volatile than Amdocs. It trades about 0.32 of its potential returns per unit of risk. Amdocs is currently generating about 0.51 per unit of risk. If you would invest  27,981  in Home Depot on September 4, 2022 and sell it today you would earn a total of  4,818  from holding Home Depot or generate 17.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Home Depot  vs.  Amdocs

 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 uncertain fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot Price Channel

Amdocs 
Amdocs Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amdocs are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Amdocs may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Amdocs Price Channel

Home Depot and Amdocs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Amdocs

The main advantage of trading using opposite Home Depot and Amdocs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Amdocs 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 Amdocs will offset losses from the drop in Amdocs' long position.
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The idea behind Home Depot and Amdocs 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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