Correlation Between T Rowe and Home Depot

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

By analyzing existing cross correlation between T Rowe Price and Home Depot, you can compare the effects of market volatilities on T Rowe and Home Depot 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 T Rowe with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of T Rowe and Home Depot.

Diversification Opportunities for T Rowe and Home Depot

0.7

Correlation Coefficient

T Rowe  Home Depot

Poor diversification

The 3 months correlation between RRTLX and Home is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and T Rowe 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 T Rowe Price are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of T Rowe i.e., T Rowe and Home Depot go up and down completely randomly.

Pair Corralation between T Rowe and Home Depot

Assuming the 90 days horizon T Rowe is expected to generate 2.15 times less return on investment than Home Depot. But when comparing it to its historical volatility, T Rowe Price is 3.26 times less risky than Home Depot. It trades about 0.05 of its potential returns per unit of risk. Home Depot is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  34,986  in Home Depot on October 9, 2024 and sell it today you would earn a total of  3,437  from holding Home Depot or generate 9.82% return on investment over 90 days.

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

T Rowe Price  vs.  Home Depot

T Rowe Price

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days T Rowe Price has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Home Depot

Risk-Adjusted Performance

0 of 100

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 weak 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.

Pair Trading with T Rowe and Home Depot

The main advantage of trading using opposite T Rowe and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T Rowe position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.

The idea behind T Rowe Price and Home Depot 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.