Correlation Between Home Depot and LightInTheBox Holding

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

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

Diversification Opportunities for Home Depot and LightInTheBox Holding

0.06

Correlation Coefficient

Home Depot  LightInTheBox Holding

Significant diversification

The 3 months correlation between Home and LightInTheBox is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and LightInTheBox Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LightInTheBox Holding 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 LightInTheBox Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LightInTheBox Holding has no effect on the direction of Home Depot i.e., Home Depot and LightInTheBox Holding go up and down completely randomly.

Pair Corralation between Home Depot and LightInTheBox Holding

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.24 times more return on investment than LightInTheBox Holding. However, Home Depot is 4.15 times less risky than LightInTheBox Holding. It trades about -0.08 of its potential returns per unit of risk. LightInTheBox Holding Co is currently generating about -0.02 per unit of risk. If you would invest  38,697  in Home Depot on December 30, 2024 and sell it today you would lose (2,882) from holding Home Depot or give up 7.45% of portfolio value over 90 days.

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

Home Depot  vs.  LightInTheBox Holding Co

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.

LightInTheBox Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days LightInTheBox Holding Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Home Depot and LightInTheBox Holding

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

The idea behind Home Depot and LightInTheBox Holding Co 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 Stocks Directory module to find actively traded stocks across global markets.