Correlation Between Home Depot and SSgA SPDR

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

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

Diversification Opportunities for Home Depot and SSgA SPDR

0.88

Correlation Coefficient

Home Depot  SSgA SPDR

Very poor diversification

The 3 months correlation between Home and SSgA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs 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 SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of Home Depot i.e., Home Depot and SSgA SPDR go up and down completely randomly.

Pair Corralation between Home Depot and SSgA SPDR

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the SSgA SPDR. In addition to that, Home Depot is 1.19 times more volatile than SSgA SPDR ETFs. It trades about -0.09 of its total potential returns per unit of risk. SSgA SPDR ETFs is currently generating about -0.09 per unit of volatility. If you would invest  6,501  in SSgA SPDR ETFs on December 26, 2024 and sell it today you would lose (429.00) from holding SSgA SPDR ETFs or give up 6.6% of portfolio value over 90 days.

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

Home Depot  vs.  SSgA SPDR ETFs

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.

SSgA SPDR ETFs

Risk-Adjusted Performance

Very Weak

Over the last 90 days SSgA SPDR ETFs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Home Depot and SSgA SPDR

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

The idea behind Home Depot and SSgA SPDR ETFs 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.