Correlation Between John Wood and Home Depot

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

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

Diversification Opportunities for John Wood and Home Depot

-0.53

Correlation Coefficient

John Wood  Home Depot

Excellent diversification

The 3 months correlation between John and Home is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding John Wood Group and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and John Wood 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 John Wood Group 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 John Wood i.e., John Wood and Home Depot go up and down completely randomly.

Pair Corralation between John Wood and Home Depot

Assuming the 90 days trading horizon John Wood Group is expected to generate 12.96 times more return on investment than Home Depot. However, John Wood is 12.96 times more volatile than Home Depot. It trades about 0.37 of its potential returns per unit of risk. Home Depot is currently generating about 0.22 per unit of risk. If you would invest  5,275  in John Wood Group on September 17, 2024 and sell it today you would earn a total of  1,675  from holding John Wood Group or generate 31.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

John Wood Group  vs.  Home Depot

John Wood Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days John Wood Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with John Wood and Home Depot

The main advantage of trading using opposite John Wood and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if John Wood 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 John Wood Group 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.

Check out your portfolio center.

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.