Correlation Between Home Depot and Newegg Commerce

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

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

Diversification Opportunities for Home Depot and Newegg Commerce

0.73

Correlation Coefficient

Home Depot  Newegg Commerce

Poor diversification

The 3 months correlation between Home and Newegg is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Newegg Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newegg Commerce 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 Newegg Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newegg Commerce has no effect on the direction of Home Depot i.e., Home Depot and Newegg Commerce go up and down completely randomly.

Pair Corralation between Home Depot and Newegg Commerce

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.26 times more return on investment than Newegg Commerce. However, Home Depot is 3.86 times less risky than Newegg Commerce. It trades about -0.08 of its potential returns per unit of risk. Newegg Commerce is currently generating about -0.11 per unit of risk. If you would invest  39,038  in Home Depot on December 27, 2024 and sell it today you would lose (2,765) from holding Home Depot or give up 7.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Home Depot  vs.  Newegg Commerce

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.

Newegg Commerce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Newegg Commerce 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 Newegg Commerce

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

The idea behind Home Depot and Newegg Commerce 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.