Correlation Between Home Depot and Midcap Growth

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

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

Diversification Opportunities for Home Depot and Midcap Growth

0.93

Correlation Coefficient

Home Depot  Midcap Growth

Almost no diversification

The 3 months correlation between Home and Midcap is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth 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 Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Home Depot i.e., Home Depot and Midcap Growth go up and down completely randomly.

Pair Corralation between Home Depot and Midcap Growth

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.66 times more return on investment than Midcap Growth. However, Home Depot is 1.52 times less risky than Midcap Growth. It trades about -0.11 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about -0.09 per unit of risk. If you would invest  41,081  in Home Depot on January 29, 2025 and sell it today you would lose (5,181) from holding Home Depot or give up 12.61% of portfolio value over 90 days.

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

Home Depot  vs.  Midcap Growth Fund

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 latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Midcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Midcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Home Depot and Midcap Growth

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

The idea behind Home Depot and Midcap Growth Fund 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.