Correlation Between Home Depot and United Natural

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

Diversification Opportunities for Home Depot and United Natural

0.45

Correlation Coefficient

Home Depot  United Natural

Very weak diversification

The 3 months correlation between Home and United is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and United Natural Foods, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Natural Foods, 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 United Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Natural Foods, has no effect on the direction of Home Depot i.e., Home Depot and United Natural go up and down completely randomly.

Pair Corralation between Home Depot and United Natural

Assuming the 90 days trading horizon The Home Depot is expected to under-perform the United Natural. But the stock apears to be less risky and, when comparing its historical volatility, The Home Depot is 1.44 times less risky than United Natural. The stock trades about -0.09 of its potential returns per unit of risk. The United Natural Foods, is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,025  in United Natural Foods, on December 22, 2024 and sell it today you would lose (405.00) from holding United Natural Foods, or give up 10.06% of portfolio value over 90 days.

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

The Home Depot  vs.  United Natural Foods,

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. Despite weak performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

United Natural Foods,

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Natural Foods, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Home Depot and United Natural

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

The idea behind The Home Depot and United Natural Foods, 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.