Correlation Between Home Depot and Broadridge Financial

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

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

Diversification Opportunities for Home Depot and Broadridge Financial

0.68

Correlation Coefficient

Home Depot  Broadridge Financial

Poor diversification

The 3 months correlation between Home and Broadridge is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Broadridge Financial Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadridge Financial 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 Broadridge Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadridge Financial has no effect on the direction of Home Depot i.e., Home Depot and Broadridge Financial go up and down completely randomly.

Pair Corralation between Home Depot and Broadridge Financial

Assuming the 90 days trading horizon Home Depot is expected to generate 6.15 times less return on investment than Broadridge Financial. But when comparing it to its historical volatility, Home Depot is 6.09 times less risky than Broadridge Financial. It trades about 0.13 of its potential returns per unit of risk. Broadridge Financial Solutions is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  21,042  in Broadridge Financial Solutions on September 26, 2024 and sell it today you would earn a total of  1,680  from holding Broadridge Financial Solutions or generate 7.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Broadridge Financial Solutions

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Broadridge Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broadridge Financial Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Broadridge Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Depot and Broadridge Financial

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

The idea behind Home Depot and Broadridge Financial Solutions 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.