Correlation Between Home Depot and MACYS

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

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

Diversification Opportunities for Home Depot and MACYS

-0.05

Correlation Coefficient

Home Depot  MACYS

Good diversification

The 3 months correlation between Home and MACYS is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and MACYS RETAIL HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACYS RETAIL HLDGS 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 MACYS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACYS RETAIL HLDGS has no effect on the direction of Home Depot i.e., Home Depot and MACYS go up and down completely randomly.

Pair Corralation between Home Depot and MACYS

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.95 times more return on investment than MACYS. However, Home Depot is 1.06 times less risky than MACYS. It trades about 0.1 of its potential returns per unit of risk. MACYS RETAIL HLDGS is currently generating about -0.01 per unit of risk. If you would invest  33,330  in Home Depot on October 7, 2024 and sell it today you would earn a total of  5,588  from holding Home Depot or generate 16.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.86%
Values	Daily Returns

Home Depot  vs.  MACYS RETAIL HLDGS

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.

MACYS RETAIL HLDGS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Home Depot and MACYS

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

The idea behind Home Depot and MACYS RETAIL HLDGS 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.