Correlation Between Twitter and Home Depot

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

Diversification Opportunities for Twitter and Home Depot

0.67
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Twitter and Home Depot

Given the investment horizon of 90 days Twitter is expected to generate 1.38 times less return on investment than Home Depot. In addition to that, Twitter is 1.92 times more volatile than Home Depot. It trades about 0.13 of its total potential returns per unit of risk. Home Depot is currently generating about 0.34 per unit of volatility. If you would invest  26,920  in Home Depot on May 19, 2022 and sell it today you would earn a total of  5,818  from holding Home Depot or generate 21.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy97.56%
ValuesDaily Returns

Twitter  vs.  Home Depot

 Performance (%) 
       Timeline  
Twitter 
Twitter Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Twitter are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

Twitter Price Channel

Home Depot 
Home Depot Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 11 (%) 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

Twitter and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Twitter and Home Depot

The main advantage of trading using opposite Twitter and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twitter position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.
The idea behind Twitter and Home Depot 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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