Correlation Between Home Depot and Inrad Optics

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

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

Diversification Opportunities for Home Depot and Inrad Optics

-0.68

Correlation Coefficient

Home Depot  Inrad Optics

Excellent diversification

The 3 months correlation between Home and Inrad is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Inrad Optics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inrad Optics 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 Inrad Optics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inrad Optics has no effect on the direction of Home Depot i.e., Home Depot and Inrad Optics go up and down completely randomly.

Pair Corralation between Home Depot and Inrad Optics

If you would invest  35,995  in Home Depot on September 5, 2024 and sell it today you would earn a total of  6,797  from holding Home Depot or generate 18.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Home Depot  vs.  Inrad Optics

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.

Inrad Optics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inrad Optics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Inrad Optics is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Home Depot and Inrad Optics

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

The idea behind Home Depot and Inrad Optics 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 Commodity Directory module to find actively traded commodities issued by global exchanges.