Correlation Between Home Depot and Best Buy

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

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

Diversification Opportunities for Home Depot and Best Buy

-0.14

Correlation Coefficient

Home Depot  Best Buy

Good diversification

The 3 months correlation between Home and Best is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Home Depot i.e., Home Depot and Best Buy go up and down completely randomly.

Pair Corralation between Home Depot and Best Buy

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.69 times more return on investment than Best Buy. However, Home Depot is 1.45 times less risky than Best Buy. It trades about 0.27 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.03 per unit of risk. If you would invest  39,300  in Home Depot on August 30, 2024 and sell it today you would earn a total of  3,419  from holding Home Depot or generate 8.7% return on investment over 90 days.

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

Home Depot  vs.  Best Buy Co

Home Depot

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Home Depot and Best Buy

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

The idea behind Home Depot and Best Buy Co 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.