Correlation Between Home Depot and Advisor Managed

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

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

Diversification Opportunities for Home Depot and Advisor Managed

0.86

Correlation Coefficient

Home Depot  Advisor Managed

Very poor diversification

The 3 months correlation between Home and Advisor is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Advisor Managed Portfolios in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advisor Managed Port 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 Advisor Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advisor Managed Port has no effect on the direction of Home Depot i.e., Home Depot and Advisor Managed go up and down completely randomly.

Pair Corralation between Home Depot and Advisor Managed

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.84 times more return on investment than Advisor Managed. However, Home Depot is 1.18 times less risky than Advisor Managed. It trades about 0.22 of its potential returns per unit of risk. Advisor Managed Portfolios is currently generating about 0.17 per unit of risk. If you would invest  36,276  in Home Depot on September 4, 2024 and sell it today you would earn a total of  6,420  from holding Home Depot or generate 17.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Home Depot  vs.  Advisor Managed Portfolios

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.

Advisor Managed Port

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advisor Managed Portfolios are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Advisor Managed disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Advisor Managed

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

The idea behind Home Depot and Advisor Managed Portfolios 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.