Correlation Between Home Depot and EBay

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

Diversification Opportunities for Home Depot and EBay

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and EBay is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and EBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBay Inc has no effect on the direction of Home Depot i.e., Home Depot and EBay go up and down completely randomly.

Pair Corralation between Home Depot and EBay

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.31 times less return on investment than EBay. But when comparing it to its historical volatility, Home Depot is 1.16 times less risky than EBay. It trades about 0.17 of its potential returns per unit of risk. EBay Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,703  in EBay Inc on September 3, 2022 and sell it today you would earn a total of  813.00  from holding EBay Inc or generate 21.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy97.73%
ValuesDaily Returns

Home Depot  vs.  EBay Inc

 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 weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot Price Channel

EBay Inc 
EBay Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in EBay Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, EBay may actually be approaching a critical reversion point that can send shares even higher in January 2023.

EBay Price Channel

Home Depot and EBay Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and EBay

The main advantage of trading using opposite Home Depot and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.
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The idea behind Home Depot and EBay Inc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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