Correlation Between Home Depot and American Express

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

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

Diversification Opportunities for Home Depot and American Express

0.75

Correlation Coefficient

Home Depot  American Express

Poor diversification

The 3 months correlation between Home and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Home Depot i.e., Home Depot and American Express go up and down completely randomly.

Pair Corralation between Home Depot and American Express

If you would invest  17,857  in Home Depot on October 4, 2024 and sell it today you would earn a total of  0.00  from holding Home Depot or generate 0.0% return on investment over 90 days.

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

Home Depot  vs.  American Express Co

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

American Express

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Home Depot and American Express

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

The idea behind Home Depot and American Express 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.