Correlation Between Home Depot and Xiaomi

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

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

Diversification Opportunities for Home Depot and Xiaomi

0.03

Correlation Coefficient

Home Depot  Xiaomi

Significant diversification

The 3 months correlation between Home and Xiaomi is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi and Home Depot 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 The Home Depot are associated (or correlated) with Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Home Depot i.e., Home Depot and Xiaomi go up and down completely randomly.

Pair Corralation between Home Depot and Xiaomi

Assuming the 90 days horizon Home Depot is expected to generate 2.54 times less return on investment than Xiaomi. But when comparing it to its historical volatility, The Home Depot is 3.22 times less risky than Xiaomi. It trades about 0.23 of its potential returns per unit of risk. Xiaomi is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,390  in Xiaomi on October 25, 2024 and sell it today you would earn a total of  1,290  from holding Xiaomi or generate 15.38% return on investment over 90 days.

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

The Home Depot  vs.  Xiaomi

Home Depot

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Xiaomi

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Xiaomi displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Xiaomi

The main advantage of trading using opposite Home Depot and Xiaomi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Xiaomi 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 Xiaomi will offset losses from the drop in Xiaomi's long position.

The idea behind The Home Depot and Xiaomi 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.