Correlation Between Home Depot and Sonder Holdings

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

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

Diversification Opportunities for Home Depot and Sonder Holdings

-0.63

Correlation Coefficient

Home Depot  Sonder Holdings

Excellent diversification

The 3 months correlation between Home and Sonder is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Sonder Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonder Holdings 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 Sonder Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonder Holdings has no effect on the direction of Home Depot i.e., Home Depot and Sonder Holdings go up and down completely randomly.

Pair Corralation between Home Depot and Sonder Holdings

Allowing for the 90-day total investment horizon Home Depot is expected to generate 6.08 times less return on investment than Sonder Holdings. But when comparing it to its historical volatility, Home Depot is 15.5 times less risky than Sonder Holdings. It trades about 0.21 of its potential returns per unit of risk. Sonder Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  283.00  in Sonder Holdings on September 5, 2024 and sell it today you would earn a total of  71.00  from holding Sonder Holdings or generate 25.09% return on investment over 90 days.

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

Home Depot  vs.  Sonder Holdings

Home Depot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 19 (%) 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.

Sonder Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonder Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Home Depot and Sonder Holdings

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

The idea behind Home Depot and Sonder Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.