Correlation Between Western Union and Home Depot
Can any of the company-specific risk be diversified away by investing in both Western Union 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 Western Union and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Western Union and The Home Depot, you can compare the effects of market volatilities on Western Union 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 Western Union with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Union and Home Depot.
Diversification Opportunities for Western Union and Home Depot
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Western and Home is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding The Western Union and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Western Union 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 Western Union 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 Western Union i.e., Western Union and Home Depot go up and down completely randomly.
Pair Corralation between Western Union and Home Depot
Assuming the 90 days horizon The Western Union is expected to under-perform the Home Depot. But the stock apears to be less risky and, when comparing its historical volatility, The Western Union is 1.19 times less risky than Home Depot. The stock trades about -0.11 of its potential returns per unit of risk. The The Home Depot is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 809,701 in The Home Depot on October 21, 2024 and sell it today you would earn a total of 40,299 from holding The Home Depot or generate 4.98% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 98.39% |
Values | Daily Returns |
The Western Union vs. The Home Depot
Performance |
Timeline |
Western Union |
Home Depot |
Western Union and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Western Union and Home Depot
The main advantage of trading using opposite Western Union and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Union 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.Western Union vs. Visa Inc | ||
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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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