Correlation Between Home Depot and Superior Industries

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

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

Diversification Opportunities for Home Depot and Superior Industries

-0.34

Correlation Coefficient

Home Depot  Superior Industries

Very good diversification

The 3 months correlation between Home and Superior is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Superior Industries Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Superior Industries 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 Superior Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Superior Industries has no effect on the direction of Home Depot i.e., Home Depot and Superior Industries go up and down completely randomly.

Pair Corralation between Home Depot and Superior Industries

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Superior Industries. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 3.35 times less risky than Superior Industries. The stock trades about -0.07 of its potential returns per unit of risk. The Superior Industries International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  200.00  in Superior Industries International on December 28, 2024 and sell it today you would earn a total of  40.00  from holding Superior Industries International or generate 20.0% return on investment over 90 days.

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

Home Depot  vs.  Superior Industries Internatio

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 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.

Superior Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Superior Industries International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Superior Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Superior Industries

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

The idea behind Home Depot and Superior Industries International 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.