Correlation Between Home Depot and Visa

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

Diversification Opportunities for Home Depot and Visa

0.44

Correlation Coefficient

Home Depot  Visa

Very weak diversification

The 3 months correlation between Home and Visa is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of Home Depot i.e., Home Depot and Visa go up and down completely randomly.

Pair Corralation between Home Depot and Visa

Assuming the 90 days horizon The Home Depot is expected to generate 1.32 times more return on investment than Visa. However, Home Depot is 1.32 times more volatile than Visa Inc. It trades about 0.21 of its potential returns per unit of risk. Visa Inc is currently generating about 0.17 per unit of risk. If you would invest  792,623  in The Home Depot on October 24, 2024 and sell it today you would earn a total of  47,852  from holding The Home Depot or generate 6.04% 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.  Visa Inc

Home Depot

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 6 (%) 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.

Visa Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Visa

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

The idea behind The Home Depot and Visa Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.