Correlation Between Home Depot and Tritium DCFC

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

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

Diversification Opportunities for Home Depot and Tritium DCFC

-0.43

Correlation Coefficient

Home Depot  Tritium DCFC

Very good diversification

The 3 months correlation between Home and Tritium is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Tritium DCFC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tritium DCFC Limited 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 Tritium DCFC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tritium DCFC Limited has no effect on the direction of Home Depot i.e., Home Depot and Tritium DCFC go up and down completely randomly.

Pair Corralation between Home Depot and Tritium DCFC

Allowing for the 90-day total investment horizon Home Depot is expected to generate 19.6 times less return on investment than Tritium DCFC. But when comparing it to its historical volatility, Home Depot is 25.08 times less risky than Tritium DCFC. It trades about 0.1 of its potential returns per unit of risk. Tritium DCFC Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Tritium DCFC Limited on September 4, 2024 and sell it today you would lose (4.20) from holding Tritium DCFC Limited or give up 70.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	39.68%
Values	Daily Returns

Home Depot  vs.  Tritium DCFC Limited

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) 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.

Tritium DCFC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Home Depot and Tritium DCFC

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

The idea behind Home Depot and Tritium DCFC Limited 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 the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.