Correlation Between GS Retail and Home Center

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

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

Diversification Opportunities for GS Retail and Home Center

0.28

Correlation Coefficient

GS Retail  Home Center

Modest diversification

The 3 months correlation between 007070 and Home is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding GS Retail Co and Home Center Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Center Holdings and GS Retail 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 GS Retail Co are associated (or correlated) with Home Center. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Center Holdings has no effect on the direction of GS Retail i.e., GS Retail and Home Center go up and down completely randomly.

Pair Corralation between GS Retail and Home Center

Assuming the 90 days trading horizon GS Retail Co is expected to generate 0.6 times more return on investment than Home Center. However, GS Retail Co is 1.66 times less risky than Home Center. It trades about 0.08 of its potential returns per unit of risk. Home Center Holdings is currently generating about -0.13 per unit of risk. If you would invest  2,140,000  in GS Retail Co on September 4, 2024 and sell it today you would earn a total of  175,000  from holding GS Retail Co or generate 8.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.92%
Values	Daily Returns

GS Retail Co  vs.  Home Center Holdings

GS Retail

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GS Retail Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GS Retail may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Home Center Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Center Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GS Retail and Home Center

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

The idea behind GS Retail Co and Home Center Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.