Correlation Between Superior Plus and Home Depot

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

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

Diversification Opportunities for Superior Plus and Home Depot

-0.3

Correlation Coefficient

Superior Plus  Home Depot

Very good diversification

The 3 months correlation between Superior and Home is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Superior Plus Corp and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Superior Plus 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 Superior Plus 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 Superior Plus i.e., Superior Plus and Home Depot go up and down completely randomly.

Pair Corralation between Superior Plus and Home Depot

Assuming the 90 days horizon Superior Plus Corp is expected to generate 1.45 times more return on investment than Home Depot. However, Superior Plus is 1.45 times more volatile than The Home Depot. It trades about 0.01 of its potential returns per unit of risk. The Home Depot is currently generating about -0.18 per unit of risk. If you would invest  415.00  in Superior Plus Corp on December 21, 2024 and sell it today you would lose (1.00) from holding Superior Plus Corp or give up 0.24% of portfolio value over 90 days.

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

Superior Plus Corp  vs.  The Home Depot

Superior Plus Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Superior Plus Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Superior Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Superior Plus and Home Depot

The main advantage of trading using opposite Superior Plus and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Superior Plus 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 Superior Plus Corp and The 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.