Correlation Between Home Depot and Nicholas Global

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

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

Diversification Opportunities for Home Depot and Nicholas Global

0.79

Correlation Coefficient

Home Depot  Nicholas Global

Poor diversification

The 3 months correlation between Home and Nicholas is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Nicholas Global Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nicholas Global Equity 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 Nicholas Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nicholas Global Equity has no effect on the direction of Home Depot i.e., Home Depot and Nicholas Global go up and down completely randomly.

Pair Corralation between Home Depot and Nicholas Global

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.0 times more return on investment than Nicholas Global. However, Home Depot is 2.0 times more volatile than Nicholas Global Equity. It trades about 0.15 of its potential returns per unit of risk. Nicholas Global Equity is currently generating about 0.15 per unit of risk. If you would invest  37,800  in Home Depot on September 13, 2024 and sell it today you would earn a total of  4,338  from holding Home Depot or generate 11.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Nicholas Global Equity

Home Depot

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 12 (%) 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.

Nicholas Global Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nicholas Global Equity are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Nicholas Global is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Nicholas Global

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

The idea behind Home Depot and Nicholas Global Equity 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.