Correlation Between Home Depot and Wayfair
Can any of the company-specific risk be diversified away by investing in both Home Depot and Wayfair 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 Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Wayfair, you can compare the effects of market volatilities on Home Depot and Wayfair 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 Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Wayfair.
Diversification Opportunities for Home Depot and Wayfair
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Home and Wayfair is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Home Depot i.e., Home Depot and Wayfair go up and down completely randomly.
Pair Corralation between Home Depot and Wayfair
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.36 times more return on investment than Wayfair. However, Home Depot is 2.75 times less risky than Wayfair. It trades about -0.5 of its potential returns per unit of risk. Wayfair is currently generating about -0.34 per unit of risk. If you would invest 38,360 in Home Depot on January 28, 2024 and sell it today you would lose (4,851) from holding Home Depot or give up 12.65% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Home Depot vs. Wayfair
Performance |
Timeline |
Home Depot |
Wayfair |
Home Depot and Wayfair Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Home Depot and Wayfair
The main advantage of trading using opposite Home Depot and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair's long position.Home Depot vs. Floor Decor Holdings | Home Depot vs. LL Flooring Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies |
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Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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