Correlation Between Home Depot and Appen

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

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

Diversification Opportunities for Home Depot and Appen

-0.18

Correlation Coefficient

Home Depot  Appen

Good diversification

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

Pair Corralation between Home Depot and Appen

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.15 times more return on investment than Appen. However, Home Depot is 6.63 times less risky than Appen. It trades about -0.23 of its potential returns per unit of risk. Appen Limited is currently generating about -0.13 per unit of risk. If you would invest  41,883  in Home Depot on November 29, 2024 and sell it today you would lose (2,706) from holding Home Depot or give up 6.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Home Depot  vs.  Appen Limited

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Appen Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Appen Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Appen may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Home Depot and Appen

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

The idea behind Home Depot and Appen Limited 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.