Correlation Between ArcelorMittal and Home Depot

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

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

Diversification Opportunities for ArcelorMittal and Home Depot

0.83

Correlation Coefficient

ArcelorMittal  Home Depot

Very poor diversification

The 3 months correlation between ArcelorMittal and Home is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and ArcelorMittal 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 ArcelorMittal SA 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 ArcelorMittal i.e., ArcelorMittal and Home Depot go up and down completely randomly.

Pair Corralation between ArcelorMittal and Home Depot

Assuming the 90 days trading horizon ArcelorMittal is expected to generate 2.83 times less return on investment than Home Depot. In addition to that, ArcelorMittal is 1.2 times more volatile than The Home Depot. It trades about 0.03 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.11 per unit of volatility. If you would invest  6,031  in The Home Depot on September 12, 2024 and sell it today you would earn a total of  3,104  from holding The Home Depot or generate 51.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

ArcelorMittal SA  vs.  The Home Depot

ArcelorMittal SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, ArcelorMittal sustained solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Home Depot sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ArcelorMittal and Home Depot

The main advantage of trading using opposite ArcelorMittal and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.