Correlation Between Home Depot and Disney

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

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

Diversification Opportunities for Home Depot and Disney

0.36

Correlation Coefficient

Home Depot  Disney

Weak diversification

The 3 months correlation between Home and Disney is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Home Depot i.e., Home Depot and Disney go up and down completely randomly.

Pair Corralation between Home Depot and Disney

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.8 times more return on investment than Disney. However, Home Depot is 1.25 times less risky than Disney. It trades about 0.06 of its potential returns per unit of risk. Walt Disney is currently generating about 0.04 per unit of risk. If you would invest  34,681  in Home Depot on October 22, 2024 and sell it today you would earn a total of  6,257  from holding Home Depot or generate 18.04% return on investment over 90 days.

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

Home Depot  vs.  Walt Disney

Home Depot

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) 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.

Walt Disney

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Home Depot and Disney

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

The idea behind Home Depot and Walt Disney 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.