Correlation Between Home Depot and Baozun

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

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

Diversification Opportunities for Home Depot and Baozun

0.88

Correlation Coefficient

Home Depot  Baozun

Very poor diversification

The 3 months correlation between Home and Baozun is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Baozun Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baozun 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 Baozun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baozun Inc has no effect on the direction of Home Depot i.e., Home Depot and Baozun go up and down completely randomly.

Pair Corralation between Home Depot and Baozun

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.25 times more return on investment than Baozun. However, Home Depot is 3.93 times less risky than Baozun. It trades about -0.08 of its potential returns per unit of risk. Baozun Inc is currently generating about -0.34 per unit of risk. If you would invest  40,806  in Home Depot on August 8, 2024 and sell it today you would lose (797.00) from holding Home Depot or give up 1.95% of portfolio value over 90 days.

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

Home Depot  vs.  Baozun Inc

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Baozun Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baozun Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Baozun displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Baozun

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

The idea behind Home Depot and Baozun 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.