Correlation Between Home Depot and Centennial Resource

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

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

Diversification Opportunities for Home Depot and Centennial Resource

0.0

Correlation Coefficient

Home Depot  Centennial Resource

Pay attention - limited upside

The 3 months correlation between Home and Centennial is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Centennial Resource Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centennial Resource 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 Centennial Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centennial Resource has no effect on the direction of Home Depot i.e., Home Depot and Centennial Resource go up and down completely randomly.

Pair Corralation between Home Depot and Centennial Resource

If you would invest  1,059  in Centennial Resource Development on February 20, 2024 and sell it today you would earn a total of  0.00  from holding Centennial Resource Development or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Home Depot  vs.  Centennial Resource Developmen

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

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

Centennial Resource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centennial Resource Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Centennial Resource is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Home Depot and Centennial Resource

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

The idea behind Home Depot and Centennial Resource Development 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.