Correlation Between Sovereign Metals and Home Depot

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

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

Diversification Opportunities for Sovereign Metals and Home Depot

0.44

Correlation Coefficient

Sovereign Metals  Home Depot

Very weak diversification

The 3 months correlation between Sovereign and Home is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Sovereign Metals 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 Sovereign Metals are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and Home Depot go up and down completely randomly.

Pair Corralation between Sovereign Metals and Home Depot

Assuming the 90 days trading horizon Sovereign Metals is expected to generate 13.31 times more return on investment than Home Depot. However, Sovereign Metals is 13.31 times more volatile than Home Depot. It trades about 0.01 of its potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of risk. If you would invest  3,600  in Sovereign Metals on September 30, 2024 and sell it today you would earn a total of  0.00  from holding Sovereign Metals or generate 0.0% return on investment over 90 days.

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

Sovereign Metals  vs.  Home Depot

Sovereign Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sovereign Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sovereign Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Home Depot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sovereign Metals and Home Depot

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

The idea behind Sovereign Metals and Home Depot 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.