Correlation Between Home Depot and ProShares UltraShort

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

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

Diversification Opportunities for Home Depot and ProShares UltraShort

-0.59

Correlation Coefficient

Home Depot  ProShares UltraShort

Excellent diversification

The 3 months correlation between Home and ProShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ProShares UltraShort Technolog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Home Depot i.e., Home Depot and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Home Depot and ProShares UltraShort

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.57 times more return on investment than ProShares UltraShort. However, Home Depot is 1.77 times less risky than ProShares UltraShort. It trades about 0.01 of its potential returns per unit of risk. ProShares UltraShort Technology is currently generating about -0.05 per unit of risk. If you would invest  38,991  in Home Depot on September 21, 2024 and sell it today you would earn a total of  269.00  from holding Home Depot or generate 0.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  ProShares UltraShort Technolog

Home Depot

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 1 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Home Depot and ProShares UltraShort

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

The idea behind Home Depot and ProShares UltraShort Technology 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.