Correlation Between Home Depot and ProShares UltraShort

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

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

Diversification Opportunities for Home Depot and ProShares UltraShort

-0.59

Correlation Coefficient

Home Depot  ProShares UltraShort

Excellent diversification

The 3 months correlation between Home and ProShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ProShares UltraShort Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Home Depot i.e., Home Depot and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Home Depot and ProShares UltraShort

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the ProShares UltraShort. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.22 times less risky than ProShares UltraShort. The stock trades about -0.1 of its potential returns per unit of risk. The ProShares UltraShort Financials is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,399  in ProShares UltraShort Financials on September 21, 2024 and sell it today you would earn a total of  268.00  from holding ProShares UltraShort Financials or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Home Depot  vs.  ProShares UltraShort Financial

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort Financials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Home Depot and ProShares UltraShort

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

The idea behind Home Depot and ProShares UltraShort Financials 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.