Correlation Between Home Depot and Vanguard Advice

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

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

Diversification Opportunities for Home Depot and Vanguard Advice

0.21

Correlation Coefficient

Home Depot  Vanguard Advice

Modest diversification

The 3 months correlation between Home and Vanguard is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Vanguard Advice Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Advice Select 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 Vanguard Advice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Advice Select has no effect on the direction of Home Depot i.e., Home Depot and Vanguard Advice go up and down completely randomly.

Pair Corralation between Home Depot and Vanguard Advice

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Vanguard Advice. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.09 times less risky than Vanguard Advice. The stock trades about -0.25 of its potential returns per unit of risk. The Vanguard Advice Select is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,048  in Vanguard Advice Select on November 29, 2024 and sell it today you would earn a total of  126.00  from holding Vanguard Advice Select or generate 6.15% return on investment over 90 days.

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

Home Depot  vs.  Vanguard Advice Select

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.

Vanguard Advice Select

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Advice Select are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Advice may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Home Depot and Vanguard Advice

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

The idea behind Home Depot and Vanguard Advice Select 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.