Correlation Between Home Depot and Givaudan

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

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

Diversification Opportunities for Home Depot and Givaudan

-0.54

Correlation Coefficient

Home Depot  Givaudan

Excellent diversification

The 3 months correlation between Home and Givaudan is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Home Depot i.e., Home Depot and Givaudan go up and down completely randomly.

Pair Corralation between Home Depot and Givaudan

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.55 times more return on investment than Givaudan. However, Home Depot is 1.83 times less risky than Givaudan. It trades about 0.24 of its potential returns per unit of risk. Givaudan SA is currently generating about -0.11 per unit of risk. If you would invest  35,995  in Home Depot on September 5, 2024 and sell it today you would earn a total of  6,940  from holding Home Depot or generate 19.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  Givaudan SA

Home Depot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Home Depot and Givaudan

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

The idea behind Home Depot and Givaudan SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.