Correlation Between Home Depot and Petrus Resources

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

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

Diversification Opportunities for Home Depot and Petrus Resources

0.61

Correlation Coefficient

Home Depot  Petrus Resources

Poor diversification

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

Pair Corralation between Home Depot and Petrus Resources

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.76 times more return on investment than Petrus Resources. However, Home Depot is 1.31 times less risky than Petrus Resources. It trades about 0.24 of its potential returns per unit of risk. Petrus Resources is currently generating about 0.12 per unit of risk. If you would invest  35,995  in Home Depot on September 5, 2024 and sell it today you would earn a total of  6,797  from holding Home Depot or generate 18.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Home Depot  vs.  Petrus Resources

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Petrus Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrus Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Petrus Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Depot and Petrus Resources

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

The idea behind Home Depot and Petrus Resources 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.