Correlation Between Home Depot and Continental

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

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

Diversification Opportunities for Home Depot and Continental

0.35

Correlation Coefficient

Home Depot  Continental

Weak diversification

The 3 months correlation between Home and Continental is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental 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 Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Home Depot i.e., Home Depot and Continental go up and down completely randomly.

Pair Corralation between Home Depot and Continental

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.38 times more return on investment than Continental. However, Home Depot is 2.66 times less risky than Continental. It trades about -0.1 of its potential returns per unit of risk. Caleres is currently generating about -0.29 per unit of risk. If you would invest  42,719  in Home Depot on November 27, 2024 and sell it today you would lose (3,406) from holding Home Depot or give up 7.97% of portfolio value over 90 days.

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

Home Depot  vs.  Caleres

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.

Continental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Home Depot and Continental

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

The idea behind Home Depot and Caleres 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.