Correlation Between Home Depot and ImagineAR

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

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

Diversification Opportunities for Home Depot and ImagineAR

0.64

Correlation Coefficient

Home Depot  ImagineAR

Poor diversification

The 3 months correlation between Home and ImagineAR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ImagineAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ImagineAR 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 ImagineAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ImagineAR has no effect on the direction of Home Depot i.e., Home Depot and ImagineAR go up and down completely randomly.

Pair Corralation between Home Depot and ImagineAR

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.14 times more return on investment than ImagineAR. However, Home Depot is 7.3 times less risky than ImagineAR. It trades about -0.07 of its potential returns per unit of risk. ImagineAR is currently generating about -0.05 per unit of risk. If you would invest  38,697  in Home Depot on December 28, 2024 and sell it today you would lose (2,424) from holding Home Depot or give up 6.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Home Depot  vs.  ImagineAR

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 rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

ImagineAR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Home Depot and ImagineAR

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

The idea behind Home Depot and ImagineAR 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.