Correlation Between Home Depot and UST Inc

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

By analyzing existing cross correlation between Home Depot and ProShares Ultra 7 10, you can compare the effects of market volatilities on Home Depot and UST Inc 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 UST Inc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and UST Inc.

Diversification Opportunities for Home Depot and UST Inc

0.52

Correlation Coefficient

Home Depot  UST Inc

Very weak diversification

The 3 months correlation between Home and UST is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ProShares Ultra 7 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra 7 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 UST Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra 7 has no effect on the direction of Home Depot i.e., Home Depot and UST Inc go up and down completely randomly.

Pair Corralation between Home Depot and UST Inc

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the UST Inc. In addition to that, Home Depot is 1.62 times more volatile than ProShares Ultra 7 10. It trades about -0.08 of its total potential returns per unit of risk. ProShares Ultra 7 10 is currently generating about 0.03 per unit of volatility. If you would invest  4,258  in ProShares Ultra 7 10 on December 2, 2024 and sell it today you would earn a total of  51.00  from holding ProShares Ultra 7 10 or generate 1.2% return on investment over 90 days.

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

Home Depot  vs.  ProShares Ultra 7 10

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.

ProShares Ultra 7

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra 7 10 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, UST Inc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Depot and UST Inc

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

The idea behind Home Depot and ProShares Ultra 7 10 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.