Correlation Between Home Depot and Demant A/S

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

By analyzing existing cross correlation between Home Depot and Demant AS ADR, you can compare the effects of market volatilities on Home Depot and Demant A/S 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 Demant A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Demant A/S.

Diversification Opportunities for Home Depot and Demant A/S

0.28

Correlation Coefficient

Home Depot  Demant A/S

Modest diversification

The 3 months correlation between Home and Demant is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR 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 Demant A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of Home Depot i.e., Home Depot and Demant A/S go up and down completely randomly.

Pair Corralation between Home Depot and Demant A/S

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.65 times more return on investment than Demant A/S. However, Home Depot is 1.54 times less risky than Demant A/S. It trades about 0.07 of its potential returns per unit of risk. Demant AS ADR is currently generating about 0.03 per unit of risk. If you would invest  27,407  in Home Depot on December 2, 2024 and sell it today you would earn a total of  12,253  from holding Home Depot or generate 44.71% 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.  Demant AS ADR

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.

Demant AS ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Demant AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Demant A/S 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 Demant A/S

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

The idea behind Home Depot and Demant AS ADR 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.