Correlation Between Home Depot and SPDR SP

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

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

Diversification Opportunities for Home Depot and SPDR SP

-0.22

Correlation Coefficient

Home Depot  SPDR SP

Very good diversification

The 3 months correlation between Home and SPDR is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of Home Depot i.e., Home Depot and SPDR SP go up and down completely randomly.

Pair Corralation between Home Depot and SPDR SP

Assuming the 90 days trading horizon Home Depot is expected to generate 0.35 times more return on investment than SPDR SP. However, Home Depot is 2.89 times less risky than SPDR SP. It trades about 0.22 of its potential returns per unit of risk. SPDR SP Materials is currently generating about -0.17 per unit of risk. If you would invest  17,632  in Home Depot on September 12, 2024 and sell it today you would earn a total of  225.00  from holding Home Depot or generate 1.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Home Depot  vs.  SPDR SP Materials

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP Materials

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with Home Depot and SPDR SP

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

The idea behind Home Depot and SPDR SP Materials 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.