Correlation Between Home Depot and DWS

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

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

Diversification Opportunities for Home Depot and DWS

0.78

Correlation Coefficient

Home Depot  DWS

Poor diversification

The 3 months correlation between Home and DWS is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and DWS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS 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 DWS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS has no effect on the direction of Home Depot i.e., Home Depot and DWS go up and down completely randomly.

Pair Corralation between Home Depot and DWS

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.73 times more return on investment than DWS. However, Home Depot is 1.73 times more volatile than DWS. It trades about 0.11 of its potential returns per unit of risk. DWS is currently generating about 0.1 per unit of risk. If you would invest  29,882  in Home Depot on September 14, 2024 and sell it today you would earn a total of  11,816  from holding Home Depot or generate 39.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	63.2%
Values	Daily Returns

Home Depot  vs.  DWS

Home Depot

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

DWS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DWS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DWS is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Home Depot and DWS

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

The idea behind Home Depot and DWS 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.