Correlation Between Summit Hotel and Home Depot

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

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

Diversification Opportunities for Summit Hotel and Home Depot

0.59

Correlation Coefficient

Summit Hotel  Home Depot

Very weak diversification

The 3 months correlation between Summit and Home is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Summit Hotel 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 Summit Hotel Properties 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 Summit Hotel i.e., Summit Hotel and Home Depot go up and down completely randomly.

Pair Corralation between Summit Hotel and Home Depot

Assuming the 90 days horizon Summit Hotel Properties is expected to under-perform the Home Depot. In addition to that, Summit Hotel is 1.5 times more volatile than The Home Depot. It trades about 0.0 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.05 per unit of volatility. If you would invest  29,448  in The Home Depot on October 24, 2024 and sell it today you would earn a total of  10,262  from holding The Home Depot or generate 34.85% return on investment over 90 days.

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

Summit Hotel Properties  vs.  The Home Depot

Summit Hotel Properties

Risk-Adjusted Performance

9 of 100

OK

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

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Summit Hotel and Home Depot

The main advantage of trading using opposite Summit Hotel and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Hotel 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 Summit Hotel Properties and The 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 Global Correlations module to find global opportunities by holding instruments from different markets.