Correlation Between Home Depot and SPDR SSGA

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

By analyzing existing cross correlation between Home Depot and SPDR SSGA My2034, you can compare the effects of market volatilities on Home Depot and SPDR SSGA 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 SPDR SSGA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and SPDR SSGA.

Diversification Opportunities for Home Depot and SPDR SSGA

0.79

Correlation Coefficient

Home Depot  SPDR SSGA

Poor diversification

The 3 months correlation between Home and SPDR is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and SPDR SSGA My2034 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA My2034 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 SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA My2034 has no effect on the direction of Home Depot i.e., Home Depot and SPDR SSGA go up and down completely randomly.

Pair Corralation between Home Depot and SPDR SSGA

Allowing for the 90-day total investment horizon Home Depot is expected to generate 3.21 times more return on investment than SPDR SSGA. However, Home Depot is 3.21 times more volatile than SPDR SSGA My2034. It trades about 0.04 of its potential returns per unit of risk. SPDR SSGA My2034 is currently generating about -0.04 per unit of risk. If you would invest  39,755  in Home Depot on October 23, 2024 and sell it today you would earn a total of  1,183  from holding Home Depot or generate 2.98% return on investment over 90 days.

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

Home Depot  vs.  SPDR SSGA My2034

Home Depot

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 3 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SSGA My2034

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSGA My2034 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and SPDR SSGA

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

The idea behind Home Depot and SPDR SSGA My2034 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.