Correlation Between Home Depot and Innovative Industrial

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

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

Diversification Opportunities for Home Depot and Innovative Industrial

-0.72

Correlation Coefficient

Home Depot  Innovative Industrial

Pay attention - limited upside

The 3 months correlation between Home and Innovative is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Innovative Industrial Properti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Industrial 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 Innovative Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Industrial has no effect on the direction of Home Depot i.e., Home Depot and Innovative Industrial go up and down completely randomly.

Pair Corralation between Home Depot and Innovative Industrial

Assuming the 90 days trading horizon Home Depot is expected to generate 52.58 times less return on investment than Innovative Industrial. But when comparing it to its historical volatility, Home Depot is 33.82 times less risky than Innovative Industrial. It trades about 0.03 of its potential returns per unit of risk. Innovative Industrial Properties is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,564  in Innovative Industrial Properties on October 22, 2024 and sell it today you would lose (811.00) from holding Innovative Industrial Properties or give up 10.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.2%
Values	Daily Returns

Home Depot  vs.  Innovative Industrial Properti

Home Depot

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Home Depot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Innovative Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovative Industrial Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Home Depot and Innovative Industrial

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

The idea behind Home Depot and Innovative Industrial Properties 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.