Correlation Between AutoNation and Home Depot

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

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

Diversification Opportunities for AutoNation and Home Depot

0.9

Correlation Coefficient

AutoNation  Home Depot

Almost no diversification

The 3 months correlation between AutoNation and Home is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and AutoNation 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 AutoNation 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 AutoNation i.e., AutoNation and Home Depot go up and down completely randomly.

Pair Corralation between AutoNation and Home Depot

Allowing for the 90-day total investment horizon AutoNation is expected to generate 1.25 times more return on investment than Home Depot. However, AutoNation is 1.25 times more volatile than Home Depot. It trades about -0.06 of its potential returns per unit of risk. Home Depot is currently generating about -0.14 per unit of risk. If you would invest  17,083  in AutoNation on January 9, 2025 and sell it today you would lose (1,512) from holding AutoNation or give up 8.85% of portfolio value over 90 days.

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

AutoNation  vs.  Home Depot

AutoNation

Risk-Adjusted Performance

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Home Depot

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with AutoNation and Home Depot

The main advantage of trading using opposite AutoNation and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation 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 AutoNation 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.