Correlation Between Home Depot and Alibaba Group

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

Diversification Opportunities for Home Depot and Alibaba Group

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Home Depot and Alibaba is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding 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 Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Home Depot i.e., Home Depot and Alibaba Group go up and down completely randomly.

Pair Corralation between Home Depot and Alibaba Group

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.41 times more return on investment than Alibaba Group. However, Home Depot is 2.43 times less risky than Alibaba Group. It trades about 0.02 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.04 per unit of risk. If you would invest  27,592  in Home Depot on May 9, 2022 and sell it today you would earn a total of  3,377  from holding Home Depot or generate 12.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Alibaba Group Holding

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 4 (%) 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

Alibaba Group Holding 
Alibaba Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

Home Depot and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Alibaba Group

The main advantage of trading using opposite Home Depot and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Alibaba Group 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 Alibaba Group will offset losses from the drop in Alibaba Group's long position.
The idea behind Home Depot and Alibaba Group Holding 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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