Correlation Between Home Depot and AutoNation

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

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

Diversification Opportunities for Home Depot and AutoNation

0.56

Correlation Coefficient

Home Depot  AutoNation

Very weak diversification

The 3 months correlation between Home and AutoNation is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation 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 AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of Home Depot i.e., Home Depot and AutoNation go up and down completely randomly.

Pair Corralation between Home Depot and AutoNation

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.77 times more return on investment than AutoNation. However, Home Depot is 1.3 times less risky than AutoNation. It trades about 0.01 of its potential returns per unit of risk. AutoNation is currently generating about -0.01 per unit of risk. If you would invest  39,462  in Home Depot on September 26, 2024 and sell it today you would earn a total of  152.00  from holding Home Depot or generate 0.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Home Depot  vs.  AutoNation

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

AutoNation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and AutoNation

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

The idea behind Home Depot and AutoNation 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.