Correlation Between Home Depot and Dominos Pizza

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

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

Diversification Opportunities for Home Depot and Dominos Pizza

0.78

Correlation Coefficient

Home Depot  Dominos Pizza

Poor diversification

The 3 months correlation between Home and Dominos is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Dominos Pizza Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza Common 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 Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza Common has no effect on the direction of Home Depot i.e., Home Depot and Dominos Pizza go up and down completely randomly.

Pair Corralation between Home Depot and Dominos Pizza

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.79 times more return on investment than Dominos Pizza. However, Home Depot is 1.26 times less risky than Dominos Pizza. It trades about 0.04 of its potential returns per unit of risk. Dominos Pizza Common is currently generating about 0.02 per unit of risk. If you would invest  39,755  in Home Depot on October 23, 2024 and sell it today you would earn a total of  1,183  from holding Home Depot or generate 2.98% return on investment over 90 days.

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

Home Depot  vs.  Dominos Pizza Common

Home Depot

Risk-Adjusted Performance

3 of 100

Insignificant

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.

Dominos Pizza Common

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza Common are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dominos Pizza is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Dominos Pizza

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

The idea behind Home Depot and Dominos Pizza Common 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.