Correlation Between Home Depot and Ladder

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

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

Diversification Opportunities for Home Depot and Ladder

-0.55

Correlation Coefficient

Home Depot  Ladder

Excellent diversification

The 3 months correlation between Home and Ladder is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Ladder Capital Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ladder Capital Finance 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 Ladder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ladder Capital Finance has no effect on the direction of Home Depot i.e., Home Depot and Ladder go up and down completely randomly.

Pair Corralation between Home Depot and Ladder

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.18 times more return on investment than Ladder. However, Home Depot is 2.18 times more volatile than Ladder Capital Finance. It trades about 0.13 of its potential returns per unit of risk. Ladder Capital Finance is currently generating about -0.13 per unit of risk. If you would invest  37,800  in Home Depot on September 13, 2024 and sell it today you would earn a total of  3,642  from holding Home Depot or generate 9.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	82.81%
Values	Daily Returns

Home Depot  vs.  Ladder Capital Finance

Home Depot

Risk-Adjusted Performance

10 of 100

Good

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.

Ladder Capital Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ladder Capital Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ladder is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Ladder

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

The idea behind Home Depot and Ladder Capital Finance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.