Correlation Between Home Depot and SPDR SSgA

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

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

Diversification Opportunities for Home Depot and SPDR SSgA

0.79

Correlation Coefficient

Home Depot  SPDR SSgA

Poor diversification

The 3 months correlation between Home and SPDR is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and SPDR SSgA Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Ultra 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 SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Ultra has no effect on the direction of Home Depot i.e., Home Depot and SPDR SSgA go up and down completely randomly.

Pair Corralation between Home Depot and SPDR SSgA

Allowing for the 90-day total investment horizon Home Depot is expected to generate 18.0 times more return on investment than SPDR SSgA. However, Home Depot is 18.0 times more volatile than SPDR SSgA Ultra. It trades about 0.11 of its potential returns per unit of risk. SPDR SSgA Ultra is currently generating about 0.07 per unit of risk. If you would invest  40,622  in Home Depot on September 4, 2024 and sell it today you would earn a total of  2,313  from holding Home Depot or generate 5.69% return on investment over 90 days.

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

Home Depot  vs.  SPDR SSgA Ultra

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

SPDR SSgA Ultra

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSgA Ultra are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR SSgA is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Depot and SPDR SSgA

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

The idea behind Home Depot and SPDR SSgA Ultra 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.