Correlation Between IShares Core and Home Depot

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

By analyzing existing cross correlation between iShares Core SP and Home Depot, you can compare the effects of market volatilities on IShares Core and Home Depot 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 IShares Core with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Home Depot.

Diversification Opportunities for IShares Core and Home Depot

0.61

Correlation Coefficient

IShares Core  Home Depot

Poor diversification

The 3 months correlation between IShares and Home is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and IShares Core 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 iShares Core SP are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of IShares Core i.e., IShares Core and Home Depot go up and down completely randomly.

Pair Corralation between IShares Core and Home Depot

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.93 times more return on investment than Home Depot. However, iShares Core SP is 1.07 times less risky than Home Depot. It trades about 0.06 of its potential returns per unit of risk. Home Depot is currently generating about -0.03 per unit of risk. If you would invest  10,273  in iShares Core SP on February 5, 2024 and sell it today you would earn a total of  440.00  from holding iShares Core SP or generate 4.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

iShares Core SP  vs.  Home Depot

iShares Core SP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, IShares Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with IShares Core and Home Depot

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

The idea behind iShares Core SP and Home Depot 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.