Correlation Between Home Depot and Adams Diversified

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

Diversification Opportunities for Home Depot and Adams Diversified

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and Adams is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Adams Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Diversified Equity and Home Depot 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 Home Depot are associated (or correlated) with Adams Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Diversified Equity has no effect on the direction of Home Depot i.e., Home Depot and Adams Diversified go up and down completely randomly.

Pair Corralation between Home Depot and Adams Diversified

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.6 times more return on investment than Adams Diversified. However, Home Depot is 1.6 times more volatile than Adams Diversified Equity. It trades about 0.21 of its potential returns per unit of risk. Adams Diversified Equity is currently generating about 0.1 per unit of risk. If you would invest  29,613  in Home Depot on August 30, 2022 and sell it today you would earn a total of  3,025  from holding Home Depot or generate 10.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Adams Diversified Equity

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot Price Channel

Adams Diversified Equity 
Adams Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adams Diversified Equity are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Adams Diversified is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Adams Price Channel

Home Depot and Adams Diversified Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Adams Diversified

The main advantage of trading using opposite Home Depot and Adams Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Adams Diversified 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 Adams Diversified will offset losses from the drop in Adams Diversified's long position.
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The idea behind Home Depot and Adams Diversified Equity 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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