Correlation Between Home Depot and Xtrackers Russell

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

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

Diversification Opportunities for Home Depot and Xtrackers Russell

0.86

Correlation Coefficient

Home Depot  Xtrackers Russell

Very poor diversification

The 3 months correlation between Home and Xtrackers is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Xtrackers Russell Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Russell 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 Xtrackers Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Russell has no effect on the direction of Home Depot i.e., Home Depot and Xtrackers Russell go up and down completely randomly.

Pair Corralation between Home Depot and Xtrackers Russell

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.72 times more return on investment than Xtrackers Russell. However, Home Depot is 1.72 times more volatile than Xtrackers Russell Multifactor. It trades about 0.16 of its potential returns per unit of risk. Xtrackers Russell Multifactor is currently generating about 0.2 per unit of risk. If you would invest  39,614  in Home Depot on October 25, 2024 and sell it today you would earn a total of  1,396  from holding Home Depot or generate 3.52% return on investment over 90 days.

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

Home Depot  vs.  Xtrackers Russell Multifactor

Home Depot

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Xtrackers Russell

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Russell Multifactor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Xtrackers Russell is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Depot and Xtrackers Russell

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

The idea behind Home Depot and Xtrackers Russell Multifactor 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.