Correlation Between Continental and Home Depot

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

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

Diversification Opportunities for Continental and Home Depot

-0.64

Correlation Coefficient

Continental  Home Depot

Excellent diversification

The 3 months correlation between Continental and Home is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Caleres and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Continental 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 Caleres 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 Continental i.e., Continental and Home Depot go up and down completely randomly.

Pair Corralation between Continental and Home Depot

Considering the 90-day investment horizon Caleres is expected to under-perform the Home Depot. In addition to that, Continental is 2.94 times more volatile than Home Depot. It trades about -0.1 of its total potential returns per unit of risk. Home Depot is currently generating about 0.23 per unit of volatility. If you would invest  36,283  in Home Depot on September 1, 2024 and sell it today you would earn a total of  6,630  from holding Home Depot or generate 18.27% return on investment over 90 days.

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

Caleres  vs.  Home Depot

Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Continental and Home Depot

The main advantage of trading using opposite Continental and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Continental 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 Caleres 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.