Correlation Between Home Depot and Gold Springs

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

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

Diversification Opportunities for Home Depot and Gold Springs

0.27

Correlation Coefficient

Home Depot  Gold Springs

Modest diversification

The 3 months correlation between Home and Gold is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Gold Springs Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Springs Resource 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 Gold Springs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Springs Resource has no effect on the direction of Home Depot i.e., Home Depot and Gold Springs go up and down completely randomly.

Pair Corralation between Home Depot and Gold Springs

Allowing for the 90-day total investment horizon Home Depot is expected to generate 5.65 times less return on investment than Gold Springs. But when comparing it to its historical volatility, Home Depot is 5.21 times less risky than Gold Springs. It trades about 0.01 of its potential returns per unit of risk. Gold Springs Resource is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6.40  in Gold Springs Resource on December 27, 2024 and sell it today you would lose (2.20) from holding Gold Springs Resource or give up 34.37% of portfolio value over 90 days.

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

Home Depot  vs.  Gold Springs Resource

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.

Gold Springs Resource

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gold Springs Resource has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Home Depot and Gold Springs

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

The idea behind Home Depot and Gold Springs Resource 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.