Correlation Between Home Depot and Exxon

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

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

Diversification Opportunities for Home Depot and Exxon

-0.46

Correlation Coefficient

Home Depot  Exxon

Very good diversification

The 3 months correlation between Home and Exxon is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of Home Depot i.e., Home Depot and Exxon go up and down completely randomly.

Pair Corralation between Home Depot and Exxon

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Exxon. In addition to that, Home Depot is 1.05 times more volatile than Exxon Mobil Corp. It trades about -0.08 of its total potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.14 per unit of volatility. If you would invest  10,555  in Exxon Mobil Corp on December 26, 2024 and sell it today you would earn a total of  1,270  from holding Exxon Mobil Corp or generate 12.03% return on investment over 90 days.

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

Home Depot  vs.  Exxon Mobil Corp

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.

Exxon Mobil Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Home Depot and Exxon

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

The idea behind Home Depot and Exxon Mobil 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.