Correlation Between SoftBank Group and Home Depot

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

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

Diversification Opportunities for SoftBank Group and Home Depot

0.21

Correlation Coefficient

SoftBank Group  Home Depot

Modest diversification

The 3 months correlation between SoftBank and Home is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding SoftBank Group Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and SoftBank Group 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 SoftBank Group Corp 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 SoftBank Group i.e., SoftBank Group and Home Depot go up and down completely randomly.

Pair Corralation between SoftBank Group and Home Depot

Assuming the 90 days trading horizon SoftBank Group Corp is expected to generate 16.01 times more return on investment than Home Depot. However, SoftBank Group is 16.01 times more volatile than Home Depot. It trades about 0.09 of its potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of risk. If you would invest  847,897  in SoftBank Group Corp on September 12, 2024 and sell it today you would earn a total of  73,403  from holding SoftBank Group Corp or generate 8.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	69.84%
Values	Daily Returns

SoftBank Group Corp  vs.  Home Depot

SoftBank Group Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SoftBank Group Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, SoftBank Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SoftBank Group and Home Depot

The main advantage of trading using opposite SoftBank Group and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SoftBank Group 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 SoftBank Group Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.