Correlation Between Home Depot and WSP Global

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

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

Diversification Opportunities for Home Depot and WSP Global

0.36

Correlation Coefficient

Home Depot  WSP Global

Weak diversification

The 3 months correlation between Home and WSP is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and WSP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSP Global 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 WSP Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSP Global has no effect on the direction of Home Depot i.e., Home Depot and WSP Global go up and down completely randomly.

Pair Corralation between Home Depot and WSP Global

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the WSP Global. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.18 times less risky than WSP Global. The stock trades about -0.09 of its potential returns per unit of risk. The WSP Global is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  18,000  in WSP Global on December 26, 2024 and sell it today you would lose (550.00) from holding WSP Global or give up 3.06% of portfolio value over 90 days.

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

Home Depot  vs.  WSP Global

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 uncertain 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.

WSP Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days WSP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WSP Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home Depot and WSP Global

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

The idea behind Home Depot and WSP Global 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.