Correlation Between Home Depot and Alsea SAB

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

By analyzing existing cross correlation between Home Depot and Alsea SAB de, you can compare the effects of market volatilities on Home Depot and Alsea SAB 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 Alsea SAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Alsea SAB.

Diversification Opportunities for Home Depot and Alsea SAB

-0.32

Correlation Coefficient

Home Depot  Alsea SAB

Very good diversification

The 3 months correlation between Home and Alsea is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Alsea SAB de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alsea SAB de 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 are associated (or correlated) with Alsea SAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alsea SAB de has no effect on the direction of Home Depot i.e., Home Depot and Alsea SAB go up and down completely randomly.

Pair Corralation between Home Depot and Alsea SAB

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.45 times more return on investment than Alsea SAB. However, Home Depot is 2.24 times less risky than Alsea SAB. It trades about 0.24 of its potential returns per unit of risk. Alsea SAB de is currently generating about -0.08 per unit of risk. If you would invest  35,995  in Home Depot on September 5, 2024 and sell it today you would earn a total of  6,940  from holding Home Depot or generate 19.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Alsea SAB de

Home Depot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alsea SAB de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alsea SAB de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Home Depot and Alsea SAB

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

The idea behind Home Depot and Alsea SAB de 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.