Correlation Between Groupon and Home Depot

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

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

Diversification Opportunities for Groupon and Home Depot

-0.67

Correlation Coefficient

Groupon  Home Depot

Excellent diversification

The 3 months correlation between Groupon and Home is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Groupon and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Groupon 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 Groupon 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 Groupon i.e., Groupon and Home Depot go up and down completely randomly.

Pair Corralation between Groupon and Home Depot

Given the investment horizon of 90 days Groupon is expected to generate 4.39 times more return on investment than Home Depot. However, Groupon is 4.39 times more volatile than Home Depot. It trades about 0.14 of its potential returns per unit of risk. Home Depot is currently generating about -0.08 per unit of risk. If you would invest  1,193  in Groupon on December 27, 2024 and sell it today you would earn a total of  626.00  from holding Groupon or generate 52.47% return on investment over 90 days.

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

Groupon  vs.  Home Depot

Groupon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Groupon are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Groupon displayed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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 Groupon and Home Depot

The main advantage of trading using opposite Groupon and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Groupon 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 Groupon 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.