Correlation Between Home Depot and Cazoo

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

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

Diversification Opportunities for Home Depot and Cazoo

-0.75

Correlation Coefficient

Home Depot  Cazoo

Pay attention - limited upside

The 3 months correlation between Home and Cazoo is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Cazoo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cazoo Group 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 Cazoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cazoo Group has no effect on the direction of Home Depot i.e., Home Depot and Cazoo go up and down completely randomly.

Pair Corralation between Home Depot and Cazoo

Allowing for the 90-day total investment horizon Home Depot is expected to generate 57.23 times less return on investment than Cazoo. But when comparing it to its historical volatility, Home Depot is 48.77 times less risky than Cazoo. It trades about 0.05 of its potential returns per unit of risk. Cazoo Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  47,500  in Cazoo Group on September 4, 2024 and sell it today you would lose (47,499) from holding Cazoo Group or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	81.41%
Values	Daily Returns

Home Depot  vs.  Cazoo Group

Home Depot

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) 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.

Cazoo Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cazoo Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Cazoo is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Cazoo

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

The idea behind Home Depot and Cazoo Group 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 Stocks Directory module to find actively traded stocks across global markets.