Correlation Between Home Depot and TotalEnergies

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

Diversification Opportunities for Home Depot and TotalEnergies

0.18

Correlation Coefficient

Home Depot  TotalEnergies

Average diversification

The 3 months correlation between Home and TotalEnergies is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Home Depot i.e., Home Depot and TotalEnergies go up and down completely randomly.

Pair Corralation between Home Depot and TotalEnergies

Assuming the 90 days horizon The Home Depot is expected to generate 1.21 times more return on investment than TotalEnergies. However, Home Depot is 1.21 times more volatile than TotalEnergies SE. It trades about 0.05 of its potential returns per unit of risk. TotalEnergies SE is currently generating about -0.01 per unit of risk. If you would invest  563,108  in The Home Depot on October 11, 2024 and sell it today you would earn a total of  223,892  from holding The Home Depot or generate 39.76% 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.  TotalEnergies SE

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

TotalEnergies SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Home Depot and TotalEnergies

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

The idea behind The Home Depot and TotalEnergies SE 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.