Correlation Between Home Depot and ATT

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

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

Diversification Opportunities for Home Depot and ATT

0.3

Correlation Coefficient

Home Depot  ATT

Weak diversification

The 3 months correlation between Home and ATT is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Home Depot i.e., Home Depot and ATT go up and down completely randomly.

Pair Corralation between Home Depot and ATT

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the ATT. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.01 times less risky than ATT. The stock trades about -0.42 of its potential returns per unit of risk. The ATT Inc is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,722  in ATT Inc on January 30, 2024 and sell it today you would lose (47.00) from holding ATT Inc or give up 2.73% of portfolio value over 90 days.

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

Home Depot  vs.  ATT Inc

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ATT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Depot and ATT

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

The idea behind Home Depot and ATT Inc 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.