Correlation Between Home Depot and Vornado Realty

Can any of the company-specific risk be diversified away by investing in both Home Depot and Vornado Realty 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 Vornado Realty 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 Vornado Realty Trust, you can compare the effects of market volatilities on Home Depot and Vornado Realty 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 Vornado Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Vornado Realty.

Diversification Opportunities for Home Depot and Vornado Realty

0.53

Correlation Coefficient

Home Depot  Vornado Realty

Very weak diversification

The 3 months correlation between Home and Vornado is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Vornado Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vornado Realty Trust 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 Vornado Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vornado Realty Trust has no effect on the direction of Home Depot i.e., Home Depot and Vornado Realty go up and down completely randomly.

Pair Corralation between Home Depot and Vornado Realty

Assuming the 90 days trading horizon Home Depot is expected to generate 3.15 times less return on investment than Vornado Realty. But when comparing it to its historical volatility, The Home Depot is 2.2 times less risky than Vornado Realty. It trades about 0.06 of its potential returns per unit of risk. Vornado Realty Trust is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,437  in Vornado Realty Trust on October 9, 2024 and sell it today you would earn a total of  1,541  from holding Vornado Realty Trust or generate 63.23% return on investment over 90 days.

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

The Home Depot  vs.  Vornado Realty Trust

Home Depot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Home Depot is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Vornado Realty Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vornado Realty Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vornado Realty may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Home Depot and Vornado Realty

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

The idea behind The Home Depot and Vornado Realty Trust 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.