Correlation Between Home Depot and Wendys

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

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

Diversification Opportunities for Home Depot and Wendys

-0.49

Correlation Coefficient

Home Depot  Wendys

Very good diversification

The 3 months correlation between Home and Wendys is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Home Depot i.e., Home Depot and Wendys go up and down completely randomly.

Pair Corralation between Home Depot and Wendys

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.85 times more return on investment than Wendys. However, Home Depot is 1.18 times less risky than Wendys. It trades about -0.04 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.06 per unit of risk. If you would invest  38,673  in Home Depot on January 3, 2025 and sell it today you would lose (1,584) from holding Home Depot or give up 4.1% of portfolio value over 90 days.

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

Home Depot  vs.  The Wendys Co

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 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.

The Wendys

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Home Depot and Wendys

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

The idea behind Home Depot and The Wendys Co 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.