Correlation Between Home Depot and Sleep Number
Can any of the company-specific risk be diversified away by investing in both Home Depot and Sleep Number 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 Sleep Number into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Sleep Number Corp, you can compare the effects of market volatilities on Home Depot and Sleep Number 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 Sleep Number. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Sleep Number.
Diversification Opportunities for Home Depot and Sleep Number
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and Sleep is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Sleep Number Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sleep Number Corp 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 Sleep Number. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sleep Number Corp has no effect on the direction of Home Depot i.e., Home Depot and Sleep Number go up and down completely randomly.
Pair Corralation between Home Depot and Sleep Number
Allowing for the 90-day total investment horizon Home Depot is expected to generate 3.2 times less return on investment than Sleep Number. But when comparing it to its historical volatility, Home Depot is 5.19 times less risky than Sleep Number. It trades about 0.17 of its potential returns per unit of risk. Sleep Number Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,515 in Sleep Number Corp on September 12, 2024 and sell it today you would earn a total of 526.00 from holding Sleep Number Corp or generate 34.72% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Home Depot vs. Sleep Number Corp
Performance |
Timeline |
Home Depot |
Sleep Number Corp |
Home Depot and Sleep Number Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Home Depot and Sleep Number
The main advantage of trading using opposite Home Depot and Sleep Number positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Sleep Number 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 Sleep Number will offset losses from the drop in Sleep Number's long position.Home Depot vs. Victory Integrity Smallmid Cap | Home Depot vs. Hilton Worldwide Holdings | Home Depot vs. NVIDIA | Home Depot vs. JPMorgan Chase Co |
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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