Correlation Between Home Depot and Community Heritage

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

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

Diversification Opportunities for Home Depot and Community Heritage

0.64

Correlation Coefficient

Home Depot  Community Heritage

Poor diversification

The 3 months correlation between Home and Community is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Community Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Heritage 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 Community Heritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Heritage has no effect on the direction of Home Depot i.e., Home Depot and Community Heritage go up and down completely randomly.

Pair Corralation between Home Depot and Community Heritage

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.65 times more return on investment than Community Heritage. However, Home Depot is 1.53 times less risky than Community Heritage. It trades about 0.05 of its potential returns per unit of risk. Community Heritage Financial is currently generating about 0.03 per unit of risk. If you would invest  31,665  in Home Depot on September 4, 2024 and sell it today you would earn a total of  11,031  from holding Home Depot or generate 34.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	73.54%
Values	Daily Returns

Home Depot  vs.  Community Heritage Financial

Home Depot

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) 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.

Community Heritage

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Community Heritage Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical indicators, Community Heritage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Depot and Community Heritage

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

The idea behind Home Depot and Community Heritage Financial 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.