Correlation Between Home Depot and Golden Agri

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

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

Diversification Opportunities for Home Depot and Golden Agri

-0.48

Correlation Coefficient

Home Depot  Golden Agri

Very good diversification

The 3 months correlation between Home and Golden is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Golden Agri Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Agri Resources 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 Golden Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Agri Resources has no effect on the direction of Home Depot i.e., Home Depot and Golden Agri go up and down completely randomly.

Pair Corralation between Home Depot and Golden Agri

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.06 times more return on investment than Golden Agri. However, Home Depot is 1.06 times more volatile than Golden Agri Resources. It trades about 0.18 of its potential returns per unit of risk. Golden Agri Resources is currently generating about 0.03 per unit of risk. If you would invest  37,247  in Home Depot on September 12, 2024 and sell it today you would earn a total of  5,012  from holding Home Depot or generate 13.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Golden Agri Resources

Home Depot

Risk-Adjusted Performance

13 of 100

Good

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

Golden Agri Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Agri Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Golden Agri is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Golden Agri

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

The idea behind Home Depot and Golden Agri Resources 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.