Correlation Between Home Depot and Dicks Sporting

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

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

Diversification Opportunities for Home Depot and Dicks Sporting

-0.35

Correlation Coefficient

Home Depot  Dicks Sporting

Very good diversification

The 3 months correlation between Home and Dicks is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Dicks Sporting Goods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dicks Sporting Goods 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 Dicks Sporting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dicks Sporting Goods has no effect on the direction of Home Depot i.e., Home Depot and Dicks Sporting go up and down completely randomly.

Pair Corralation between Home Depot and Dicks Sporting

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.61 times more return on investment than Dicks Sporting. However, Home Depot is 1.65 times less risky than Dicks Sporting. It trades about 0.23 of its potential returns per unit of risk. Dicks Sporting Goods is currently generating about -0.08 per unit of risk. If you would invest  36,283  in Home Depot on September 1, 2024 and sell it today you would earn a total of  6,630  from holding Home Depot or generate 18.27% 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.  Dicks Sporting Goods

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) 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.

Dicks Sporting Goods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dicks Sporting Goods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Home Depot and Dicks Sporting

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

The idea behind Home Depot and Dicks Sporting Goods 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.