Correlation Between Sabio Holdings and Home Depot

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

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

Diversification Opportunities for Sabio Holdings and Home Depot

-0.57

Correlation Coefficient

Sabio Holdings  Home Depot

Excellent diversification

The 3 months correlation between Sabio and Home is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sabio Holdings and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Sabio Holdings 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 Sabio Holdings 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 Sabio Holdings i.e., Sabio Holdings and Home Depot go up and down completely randomly.

Pair Corralation between Sabio Holdings and Home Depot

Assuming the 90 days horizon Sabio Holdings is expected to generate 3.9 times more return on investment than Home Depot. However, Sabio Holdings is 3.9 times more volatile than Home Depot. It trades about 0.13 of its potential returns per unit of risk. Home Depot is currently generating about -0.13 per unit of risk. If you would invest  33.00  in Sabio Holdings on December 24, 2024 and sell it today you would earn a total of  13.00  from holding Sabio Holdings or generate 39.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Sabio Holdings  vs.  Home Depot

Sabio Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sabio Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sabio Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady 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 Sabio Holdings and Home Depot

The main advantage of trading using opposite Sabio Holdings and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sabio Holdings 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 Sabio Holdings 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.