Correlation Between Home Depot and GREENLIGHT CAP

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

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

Diversification Opportunities for Home Depot and GREENLIGHT CAP

0.72

Correlation Coefficient

Home Depot  GREENLIGHT CAP

Poor diversification

The 3 months correlation between Home and GREENLIGHT is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and GREENLIGHT CAP RE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GREENLIGHT CAP RE 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 The Home Depot are associated (or correlated) with GREENLIGHT CAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GREENLIGHT CAP RE has no effect on the direction of Home Depot i.e., Home Depot and GREENLIGHT CAP go up and down completely randomly.

Pair Corralation between Home Depot and GREENLIGHT CAP

Assuming the 90 days trading horizon The Home Depot is expected to under-perform the GREENLIGHT CAP. But the stock apears to be less risky and, when comparing its historical volatility, The Home Depot is 1.0 times less risky than GREENLIGHT CAP. The stock trades about -0.13 of its potential returns per unit of risk. The GREENLIGHT CAP RE is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,320  in GREENLIGHT CAP RE on December 23, 2024 and sell it today you would lose (90.00) from holding GREENLIGHT CAP RE or give up 6.82% of portfolio value over 90 days.

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

The Home Depot  vs.  GREENLIGHT CAP RE

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

GREENLIGHT CAP RE

Risk-Adjusted Performance

Very Weak

Over the last 90 days GREENLIGHT CAP RE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Home Depot and GREENLIGHT CAP

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

The idea behind The Home Depot and GREENLIGHT CAP RE 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.