Correlation Between Home Depot and Invesco SP

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

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

Diversification Opportunities for Home Depot and Invesco SP

0.87

Correlation Coefficient

Home Depot  Invesco SP

Very poor diversification

The 3 months correlation between Home and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of Home Depot i.e., Home Depot and Invesco SP go up and down completely randomly.

Pair Corralation between Home Depot and Invesco SP

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.14 times more return on investment than Invesco SP. However, Home Depot is 1.14 times more volatile than Invesco SP MidCap. It trades about 0.18 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.15 per unit of risk. If you would invest  37,247  in Home Depot on September 12, 2024 and sell it today you would earn a total of  5,012  from holding Home Depot or generate 13.46% return on investment over 90 days.

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

Home Depot  vs.  Invesco SP MidCap

Home Depot

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco SP MidCap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Depot and Invesco SP

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

The idea behind Home Depot and Invesco SP MidCap 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.