Correlation Between Big Lots and Home Depot

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Can any of the company-specific risk be diversified away by investing in both Big Lots 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 Big Lots and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big Lots and Home Depot, you can compare the effects of market volatilities on Big Lots 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 Big Lots with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Lots and Home Depot.

Diversification Opportunities for Big Lots and Home Depot

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Big Lots and Home Depot is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Big Lots 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 Big Lots 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 Big Lots i.e., Big Lots and Home Depot go up and down completely randomly.

Pair Corralation between Big Lots and Home Depot

Considering the 90-day investment horizon Big Lots is expected to under-perform the Home Depot. In addition to that, Big Lots is 2.63 times more volatile than Home Depot. It trades about -0.1 of its total potential returns per unit of risk. Home Depot is currently generating about -0.07 per unit of volatility. If you would invest  30,995  in Home Depot on July 9, 2022 and sell it today you would lose (1,956)  from holding Home Depot or give up 6.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Big Lots  vs.  Home Depot

 Performance (%) 
       Timeline  
Big Lots 
Big Lots Performance
0 of 100
Over the last 90 days Big Lots 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 forward indicators remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Big Lots Price Channel

Home Depot 
Home Depot Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot Price Channel

Big Lots and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big Lots and Home Depot

The main advantage of trading using opposite Big Lots and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Lots 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.
Big Lots vs. Amazon Inc
The idea behind Big Lots 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.
Home Depot vs. Amazon Inc
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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