Correlation Between BlackRock and Home Depot

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

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

Diversification Opportunities for BlackRock and Home Depot

0.18

Correlation Coefficient

BlackRock  Home Depot

Average diversification

The 3 months correlation between BlackRock and Home is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and BlackRock 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 BlackRock 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 BlackRock i.e., BlackRock and Home Depot go up and down completely randomly.

Pair Corralation between BlackRock and Home Depot

Considering the 90-day investment horizon BlackRock is expected to generate 0.94 times more return on investment than Home Depot. However, BlackRock is 1.06 times less risky than Home Depot. It trades about 0.06 of its potential returns per unit of risk. Home Depot is currently generating about 0.04 per unit of risk. If you would invest  71,577  in BlackRock on October 4, 2024 and sell it today you would earn a total of  30,163  from holding BlackRock or generate 42.14% return on investment over 90 days.

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

BlackRock  vs.  Home Depot

BlackRock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, BlackRock may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BlackRock and Home Depot

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

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