Correlation Between Home Depot and XXL Energy

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

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

Diversification Opportunities for Home Depot and XXL Energy

-0.31

Correlation Coefficient

Home Depot  XXL Energy

Very good diversification

The 3 months correlation between Home and XXL is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and XXL Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XXL Energy Corp 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 XXL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XXL Energy Corp has no effect on the direction of Home Depot i.e., Home Depot and XXL Energy go up and down completely randomly.

Pair Corralation between Home Depot and XXL Energy

If you would invest  37,247  in Home Depot on September 12, 2024 and sell it today you would earn a total of  5,012  from holding Home Depot or generate 13.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Home Depot  vs.  XXL Energy Corp

Home Depot

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

XXL Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XXL Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, XXL Energy 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 XXL Energy

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

The idea behind Home Depot and XXL Energy Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.