Correlation Between Home Depot and Wesdome Gold

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

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

Diversification Opportunities for Home Depot and Wesdome Gold

-0.44

Correlation Coefficient

Home Depot  Wesdome Gold

Very good diversification

The 3 months correlation between Home and Wesdome is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Wesdome Gold Mines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesdome Gold Mines 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 Wesdome Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesdome Gold Mines has no effect on the direction of Home Depot i.e., Home Depot and Wesdome Gold go up and down completely randomly.

Pair Corralation between Home Depot and Wesdome Gold

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.47 times more return on investment than Wesdome Gold. However, Home Depot is 2.14 times less risky than Wesdome Gold. It trades about 0.22 of its potential returns per unit of risk. Wesdome Gold Mines is currently generating about -0.02 per unit of risk. If you would invest  36,276  in Home Depot on September 4, 2024 and sell it today you would earn a total of  6,420  from holding Home Depot or generate 17.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Wesdome Gold Mines

Home Depot

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) 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.

Wesdome Gold Mines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesdome Gold Mines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Wesdome Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home Depot and Wesdome Gold

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

The idea behind Home Depot and Wesdome Gold Mines 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.