Correlation Between Ford and Home Depot

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

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

Diversification Opportunities for Ford and Home Depot

0.64

Correlation Coefficient

Ford  Home Depot

Poor diversification

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

Pair Corralation between Ford and Home Depot

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Home Depot. In addition to that, Ford is 1.35 times more volatile than Home Depot. It trades about -0.09 of its total potential returns per unit of risk. Home Depot is currently generating about -0.08 per unit of volatility. If you would invest  42,696  in Home Depot on December 1, 2024 and sell it today you would lose (3,036) from holding Home Depot or give up 7.11% of portfolio value over 90 days.

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

Ford Motor  vs.  Home Depot

Ford Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Home Depot

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Ford and Home Depot

The main advantage of trading using opposite Ford and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.