Correlation Between Home Depot and CF Acquisition

Can any of the company-specific risk be diversified away by investing in both Home Depot and CF Acquisition 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 CF Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Home Depot and CF Acquisition IV, you can compare the effects of market volatilities on Home Depot and CF Acquisition 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 CF Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and CF Acquisition.

Diversification Opportunities for Home Depot and CF Acquisition

0.69

Correlation Coefficient

Home Depot  CF Acquisition

Poor diversification

The 3 months correlation between Home and CFIV is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and CF Acquisition IV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Acquisition IV 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 CF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Acquisition IV has no effect on the direction of Home Depot i.e., Home Depot and CF Acquisition go up and down completely randomly.

Pair Corralation between Home Depot and CF Acquisition

Allowing for the 90-day total investment horizon Home Depot is expected to generate 6.39 times more return on investment than CF Acquisition. However, Home Depot is 6.39 times more volatile than CF Acquisition IV. It trades about 0.07 of its potential returns per unit of risk. CF Acquisition IV is currently generating about 0.12 per unit of risk. If you would invest  28,111  in Home Depot on September 17, 2024 and sell it today you would earn a total of  13,203  from holding Home Depot or generate 46.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	22.59%
Values	Daily Returns

Home Depot  vs.  CF Acquisition IV

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CF Acquisition IV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CF Acquisition IV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, CF Acquisition is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Home Depot and CF Acquisition

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

The idea behind Home Depot and CF Acquisition IV 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.