Correlation Between Home Depot and Grupo Sports

Can any of the company-specific risk be diversified away by investing in both Home Depot and Grupo Sports 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 Grupo Sports 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 Grupo Sports World, you can compare the effects of market volatilities on Home Depot and Grupo Sports 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 Grupo Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Grupo Sports.

Diversification Opportunities for Home Depot and Grupo Sports

0.4

Correlation Coefficient

Home Depot  Grupo Sports

Very weak diversification

The 3 months correlation between Home and Grupo is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Grupo Sports World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Sports World 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 Grupo Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Sports World has no effect on the direction of Home Depot i.e., Home Depot and Grupo Sports go up and down completely randomly.

Pair Corralation between Home Depot and Grupo Sports

Assuming the 90 days horizon Home Depot is expected to generate 1.06 times less return on investment than Grupo Sports. But when comparing it to its historical volatility, The Home Depot is 1.13 times less risky than Grupo Sports. It trades about 0.11 of its potential returns per unit of risk. Grupo Sports World is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  403.00  in Grupo Sports World on October 20, 2024 and sell it today you would earn a total of  192.00  from holding Grupo Sports World or generate 47.64% return on investment over 90 days.

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

The Home Depot  vs.  Grupo Sports World

Home Depot

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Home Depot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Grupo Sports World

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Sports World are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Grupo Sports is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Grupo Sports

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

The idea behind The Home Depot and Grupo Sports World 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.