Correlation Between Home Depot and ProShares High

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

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

Diversification Opportunities for Home Depot and ProShares High

0.61

Correlation Coefficient

Home Depot  ProShares High

Poor diversification

The 3 months correlation between Home and ProShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ProShares High YieldInterest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares High Yield 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 ProShares High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares High Yield has no effect on the direction of Home Depot i.e., Home Depot and ProShares High go up and down completely randomly.

Pair Corralation between Home Depot and ProShares High

Allowing for the 90-day total investment horizon Home Depot is expected to generate 6.0 times more return on investment than ProShares High. However, Home Depot is 6.0 times more volatile than ProShares High YieldInterest. It trades about 0.07 of its potential returns per unit of risk. ProShares High YieldInterest is currently generating about 0.25 per unit of risk. If you would invest  38,830  in Home Depot on September 19, 2024 and sell it today you would earn a total of  2,017  from holding Home Depot or generate 5.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  ProShares High YieldInterest

Home Depot

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 5 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares High Yield

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares High YieldInterest are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, ProShares High is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home Depot and ProShares High

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

The idea behind Home Depot and ProShares High YieldInterest 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.