Correlation Between HOME DEPOT and CHEVRON CDR

Can any of the company-specific risk be diversified away by investing in both HOME DEPOT and CHEVRON CDR 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 CHEVRON CDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HOME DEPOT CDR and CHEVRON CDR, you can compare the effects of market volatilities on HOME DEPOT and CHEVRON CDR 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 CHEVRON CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of HOME DEPOT and CHEVRON CDR.

Diversification Opportunities for HOME DEPOT and CHEVRON CDR

0.76

Correlation Coefficient

HOME DEPOT  CHEVRON CDR

Poor diversification

The 3 months correlation between HOME and CHEVRON is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding HOME DEPOT CDR and CHEVRON CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON CDR 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 CDR are associated (or correlated) with CHEVRON CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON CDR has no effect on the direction of HOME DEPOT i.e., HOME DEPOT and CHEVRON CDR go up and down completely randomly.

Pair Corralation between HOME DEPOT and CHEVRON CDR

Assuming the 90 days trading horizon HOME DEPOT is expected to generate 1.01 times less return on investment than CHEVRON CDR. In addition to that, HOME DEPOT is 1.02 times more volatile than CHEVRON CDR. It trades about 0.17 of its total potential returns per unit of risk. CHEVRON CDR is currently generating about 0.17 per unit of volatility. If you would invest  1,853  in CHEVRON CDR on September 12, 2024 and sell it today you would earn a total of  244.00  from holding CHEVRON CDR or generate 13.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

HOME DEPOT CDR  vs.  CHEVRON CDR

HOME DEPOT CDR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HOME DEPOT CDR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, HOME DEPOT displayed solid returns over the last few months and may actually be approaching a breakup point.

CHEVRON CDR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHEVRON CDR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, CHEVRON CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HOME DEPOT and CHEVRON CDR

The main advantage of trading using opposite HOME DEPOT and CHEVRON CDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HOME DEPOT position performs unexpectedly, CHEVRON CDR 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 CHEVRON CDR will offset losses from the drop in CHEVRON CDR's long position.

The idea behind HOME DEPOT CDR and CHEVRON CDR 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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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 the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.