Correlation Between Home Depot and Solvay Bank

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

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

Diversification Opportunities for Home Depot and Solvay Bank

0.38

Correlation Coefficient

Home Depot  Solvay Bank

Weak diversification

The 3 months correlation between Home and Solvay is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Solvay Bank Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay Bank 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 Solvay Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay Bank Corp has no effect on the direction of Home Depot i.e., Home Depot and Solvay Bank go up and down completely randomly.

Pair Corralation between Home Depot and Solvay Bank

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.5 times more return on investment than Solvay Bank. However, Home Depot is 2.01 times less risky than Solvay Bank. It trades about -0.42 of its potential returns per unit of risk. Solvay Bank Corp is currently generating about -0.26 per unit of risk. If you would invest  43,137  in Home Depot on October 7, 2024 and sell it today you would lose (4,219) from holding Home Depot or give up 9.78% of portfolio value over 90 days.

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

Home Depot  vs.  Solvay Bank Corp

Home Depot

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Solvay Bank Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solvay Bank Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Home Depot and Solvay Bank

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

The idea behind Home Depot and Solvay Bank Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.