Correlation Between Home Depot and CONSTELLATION

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

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

Diversification Opportunities for Home Depot and CONSTELLATION

0.38

Correlation Coefficient

Home Depot  CONSTELLATION

Weak diversification

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

Pair Corralation between Home Depot and CONSTELLATION

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.54 times more return on investment than CONSTELLATION. However, Home Depot is 2.54 times more volatile than CONSTELLATION BRANDS INC. It trades about 0.09 of its potential returns per unit of risk. CONSTELLATION BRANDS INC is currently generating about -0.05 per unit of risk. If you would invest  34,031  in Home Depot on October 8, 2024 and sell it today you would earn a total of  4,887  from holding Home Depot or generate 14.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.6%
Values	Daily Returns

Home Depot  vs.  CONSTELLATION BRANDS INC

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CONSTELLATION BRANDS INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CONSTELLATION BRANDS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CONSTELLATION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and CONSTELLATION

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

The idea behind Home Depot and CONSTELLATION BRANDS INC 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.