Correlation Between Home Depot and WESTLAKE

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

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

Diversification Opportunities for Home Depot and WESTLAKE

0.14

Correlation Coefficient

Home Depot  WESTLAKE

Average diversification

The 3 months correlation between Home and WESTLAKE is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and WESTLAKE CHEM P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTLAKE CHEM P 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 WESTLAKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTLAKE CHEM P has no effect on the direction of Home Depot i.e., Home Depot and WESTLAKE go up and down completely randomly.

Pair Corralation between Home Depot and WESTLAKE

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.35 times more return on investment than WESTLAKE. However, Home Depot is 1.35 times more volatile than WESTLAKE CHEM P. It trades about -0.13 of its potential returns per unit of risk. WESTLAKE CHEM P is currently generating about -0.2 per unit of risk. If you would invest  41,198  in Home Depot on December 2, 2024 and sell it today you would lose (1,538) from holding Home Depot or give up 3.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Home Depot  vs.  WESTLAKE CHEM P

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 latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

WESTLAKE CHEM P

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Home Depot and WESTLAKE

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

The idea behind Home Depot and WESTLAKE CHEM P 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 Transaction History module to view history of all your transactions and understand their impact on performance.