Correlation Between Home Depot and Vow ASA

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

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

Diversification Opportunities for Home Depot and Vow ASA

-0.72

Correlation Coefficient

Home Depot  Vow ASA

Pay attention - limited upside

The 3 months correlation between Home and Vow is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Vow ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vow ASA 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 Vow ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vow ASA has no effect on the direction of Home Depot i.e., Home Depot and Vow ASA go up and down completely randomly.

Pair Corralation between Home Depot and Vow ASA

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.13 times more return on investment than Vow ASA. However, Home Depot is 7.83 times less risky than Vow ASA. It trades about 0.22 of its potential returns per unit of risk. Vow ASA is currently generating about -0.13 per unit of risk. If you would invest  36,283  in Home Depot on September 3, 2024 and sell it today you would earn a total of  6,413  from holding Home Depot or generate 17.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Home Depot  vs.  Vow ASA

Home Depot

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vow ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vow ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Home Depot and Vow ASA

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

The idea behind Home Depot and Vow ASA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..