Correlation Between Amana Developing and Home Depot

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Can any of the company-specific risk be diversified away by investing in both Amana Developing 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 Amana Developing and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amana Developing World and Home Depot, you can compare the effects of market volatilities on Amana Developing 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 Amana Developing with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amana Developing and Home Depot.

Diversification Opportunities for Amana Developing and Home Depot

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Amana and Home is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding AMANA DEVELOPING WORLD and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Amana Developing 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 Amana Developing World 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 Amana Developing i.e., Amana Developing and Home Depot go up and down completely randomly.

Pair Corralation between Amana Developing and Home Depot

Assuming the 90 days horizon Amana Developing is expected to generate 3.24 times less return on investment than Home Depot. But when comparing it to its historical volatility, Amana Developing World is 2.12 times less risky than Home Depot. It trades about 0.03 of its potential returns per unit of risk. Home Depot is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  29,111  in Home Depot on December 30, 2023 and sell it today you would earn a total of  9,249  from holding Home Depot or generate 31.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

AMANA DEVELOPING WORLD  vs.  Home Depot

 Performance 
       Timeline  
Amana Developing World 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Amana Developing World are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Amana Developing may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Home Depot 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
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 fragile fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Amana Developing and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amana Developing and Home Depot

The main advantage of trading using opposite Amana Developing and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amana Developing 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 Amana Developing World 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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