Correlation Between HOME DEPOT and Verizon Communications

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

By analyzing existing cross correlation between HOME DEPOT CDR and Verizon Communications CDR, you can compare the effects of market volatilities on HOME DEPOT and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of HOME DEPOT and Verizon Communications.

Diversification Opportunities for HOME DEPOT and Verizon Communications

0.31

Correlation Coefficient

HOME DEPOT  Verizon Communications

Weak diversification

The 3 months correlation between HOME and Verizon is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding HOME DEPOT CDR and Verizon Communications CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 HOME DEPOT CDR are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of HOME DEPOT i.e., HOME DEPOT and Verizon Communications go up and down completely randomly.

Pair Corralation between HOME DEPOT and Verizon Communications

Assuming the 90 days trading horizon HOME DEPOT CDR is expected to generate 0.93 times more return on investment than Verizon Communications. However, HOME DEPOT CDR is 1.07 times less risky than Verizon Communications. It trades about 0.06 of its potential returns per unit of risk. Verizon Communications CDR is currently generating about 0.05 per unit of risk. If you would invest  1,820  in HOME DEPOT CDR on December 4, 2024 and sell it today you would earn a total of  676.00  from holding HOME DEPOT CDR or generate 37.14% return on investment over 90 days.

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

HOME DEPOT CDR  vs.  Verizon Communications CDR

HOME DEPOT CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days HOME DEPOT CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Verizon Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications CDR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Verizon Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HOME DEPOT and Verizon Communications

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

The idea behind HOME DEPOT CDR and Verizon Communications CDR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.