Correlation Between Home Depot and ETFS Commodity

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

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

Diversification Opportunities for Home Depot and ETFS Commodity

-0.57

Correlation Coefficient

Home Depot  ETFS Commodity

Excellent diversification

The 3 months correlation between Home and ETFS is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ETFS Commodity Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Commodity Securities 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 ETFS Commodity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Commodity Securities has no effect on the direction of Home Depot i.e., Home Depot and ETFS Commodity go up and down completely randomly.

Pair Corralation between Home Depot and ETFS Commodity

Allowing for the 90-day total investment horizon Home Depot is expected to generate 20.16 times less return on investment than ETFS Commodity. But when comparing it to its historical volatility, Home Depot is 3.79 times less risky than ETFS Commodity. It trades about 0.05 of its potential returns per unit of risk. ETFS Commodity Securities is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,427  in ETFS Commodity Securities on September 18, 2024 and sell it today you would earn a total of  758.00  from holding ETFS Commodity Securities or generate 22.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	3.03%
Values	Daily Returns

Home Depot  vs.  ETFS Commodity Securities

Home Depot

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ETFS Commodity Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETFS Commodity Securities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ETFS Commodity is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home Depot and ETFS Commodity

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

The idea behind Home Depot and ETFS Commodity Securities 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.