Correlation Between Long-Term Govt and Home Depot

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

Diversification Opportunities for Long-Term Govt and Home Depot

0.06
  Correlation Coefficient

Significant diversification

The 3 months correlation between Long-Term and Home Depot is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Long-Term Govt Bond and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Long-Term Govt 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 Long-Term Govt Bond 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 Long-Term Govt i.e., Long-Term Govt and Home Depot go up and down completely randomly.

Pair Corralation between Long-Term Govt and Home Depot

Given the investment horizon of 90 days Long-Term Govt is expected to generate 1.52 times less return on investment than Home Depot. But when comparing it to its historical volatility, Long-Term Govt Bond is 2.0 times less risky than Home Depot. It trades about 0.28 of its potential returns per unit of risk. Home Depot is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  29,613  in Home Depot on August 30, 2022 and sell it today you would earn a total of  3,025  from holding Home Depot or generate 10.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Long-Term Govt Bond  vs.  Home Depot

 Performance (%) 
       Timeline  
Long-Term Govt Bond 
Long-Term Performance
0 of 100
Over the last 90 days Long-Term Govt Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Long-Term Price Channel

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

Home Depot Price Channel

Long-Term Govt and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Long-Term Govt and Home Depot

The main advantage of trading using opposite Long-Term Govt and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long-Term Govt 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.
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Long-Term Govt vs. 10-20 Year Treas
Long-Term Govt vs. Extended Dur Trs
The idea behind Long-Term Govt Bond 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.
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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