Correlation Between Home Depot and Pacer Swan

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

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

Diversification Opportunities for Home Depot and Pacer Swan

0.81

Correlation Coefficient

Home Depot  Pacer Swan

Very poor diversification

The 3 months correlation between Home and Pacer is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Pacer Swan SOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Swan SOS 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 Pacer Swan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Swan SOS has no effect on the direction of Home Depot i.e., Home Depot and Pacer Swan go up and down completely randomly.

Pair Corralation between Home Depot and Pacer Swan

Allowing for the 90-day total investment horizon Home Depot is expected to generate 3.49 times more return on investment than Pacer Swan. However, Home Depot is 3.49 times more volatile than Pacer Swan SOS. It trades about 0.18 of its potential returns per unit of risk. Pacer Swan SOS is currently generating about 0.22 per unit of risk. If you would invest  37,247  in Home Depot on September 12, 2024 and sell it today you would earn a total of  5,012  from holding Home Depot or generate 13.46% return on investment over 90 days.

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

Home Depot  vs.  Pacer Swan SOS

Home Depot

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pacer Swan SOS

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Swan SOS are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Pacer Swan is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Home Depot and Pacer Swan

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

The idea behind Home Depot and Pacer Swan SOS 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.