Correlation Between Home Depot and SentinelOne

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

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

Diversification Opportunities for Home Depot and SentinelOne

0.68

Correlation Coefficient

Home Depot  SentinelOne

Poor diversification

The 3 months correlation between Home and SentinelOne is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and SentinelOne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SentinelOne 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 SentinelOne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SentinelOne has no effect on the direction of Home Depot i.e., Home Depot and SentinelOne go up and down completely randomly.

Pair Corralation between Home Depot and SentinelOne

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.28 times less return on investment than SentinelOne. But when comparing it to its historical volatility, Home Depot is 2.16 times less risky than SentinelOne. It trades about 0.23 of its potential returns per unit of risk. SentinelOne is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,288  in SentinelOne on September 1, 2024 and sell it today you would earn a total of  507.00  from holding SentinelOne or generate 22.16% return on investment over 90 days.

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

Home Depot  vs.  SentinelOne

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.

SentinelOne

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SentinelOne are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, SentinelOne unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and SentinelOne

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

The idea behind Home Depot and SentinelOne 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.