Correlation Between Xtrackers California and Home Depot
Can any of the company-specific risk be diversified away by investing in both Xtrackers California 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 Xtrackers California and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers California Municipal and Home Depot, you can compare the effects of market volatilities on Xtrackers California 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 Xtrackers California with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers California and Home Depot.
Diversification Opportunities for Xtrackers California and Home Depot
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Xtrackers and Home is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers California Municipal and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Xtrackers California 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 Xtrackers California Municipal 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 Xtrackers California i.e., Xtrackers California and Home Depot go up and down completely randomly.
Pair Corralation between Xtrackers California and Home Depot
Allowing for the 90-day total investment horizon Xtrackers California is expected to generate 22.62 times less return on investment than Home Depot. But when comparing it to its historical volatility, Xtrackers California Municipal is 10.64 times less risky than Home Depot. It trades about 0.05 of its potential returns per unit of risk. Home Depot is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 37,333 in Home Depot on December 29, 2023 and sell it today you would earn a total of 1,027 from holding Home Depot or generate 2.75% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 95.65% |
Values | Daily Returns |
Xtrackers California Municipal vs. Home Depot
Performance |
Timeline |
Xtrackers California |
Home Depot |
Xtrackers California and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Xtrackers California and Home Depot
The main advantage of trading using opposite Xtrackers California and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers California 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.Xtrackers California vs. Vanguard Mid Cap Index | Xtrackers California vs. SPDR SP 500 | Xtrackers California vs. Vanguard Small Cap Index | Xtrackers California vs. Vanguard FTSE Developed |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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