Correlation Between Home Depot and IShares MSCI

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

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

Diversification Opportunities for Home Depot and IShares MSCI

-0.24

Correlation Coefficient

Home Depot  IShares MSCI

Very good diversification

The 3 months correlation between Home and IShares is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and iShares MSCI South in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI South 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI South has no effect on the direction of Home Depot i.e., Home Depot and IShares MSCI go up and down completely randomly.

Pair Corralation between Home Depot and IShares MSCI

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the IShares MSCI. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.03 times less risky than IShares MSCI. The stock trades about -0.08 of its potential returns per unit of risk. The iShares MSCI South is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,146  in iShares MSCI South on December 27, 2024 and sell it today you would earn a total of  535.00  from holding iShares MSCI South or generate 10.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Home Depot  vs.  iShares MSCI South

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

iShares MSCI South

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI South are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Home Depot and IShares MSCI

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

The idea behind Home Depot and iShares MSCI South 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.