Correlation Between Home Depot and Global E

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

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

Diversification Opportunities for Home Depot and Global E

0.75

Correlation Coefficient

Home Depot  Global E

Poor diversification

The 3 months correlation between Home and Global is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Global E Online in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Online 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 Global E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Online has no effect on the direction of Home Depot i.e., Home Depot and Global E go up and down completely randomly.

Pair Corralation between Home Depot and Global E

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Global E. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.48 times less risky than Global E. The stock trades about -0.05 of its potential returns per unit of risk. The Global E Online is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,811  in Global E Online on August 19, 2024 and sell it today you would earn a total of  219.00  from holding Global E Online or generate 5.75% return on investment over 90 days.

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

Home Depot  vs.  Global E Online

Home Depot

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Global E Online

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Online are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Global E exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Global E

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

The idea behind Home Depot and Global E Online 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.