Correlation Between Home Depot and Goldman Sachs

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

Diversification Opportunities for Home Depot and Goldman Sachs

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Home Depot and Goldman is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Goldman Sachs Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Group 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Group has no effect on the direction of Home Depot i.e., Home Depot and Goldman Sachs go up and down completely randomly.

Pair Corralation between Home Depot and Goldman Sachs

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.57 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, Home Depot is 1.81 times less risky than Goldman Sachs. It trades about 0.38 of its potential returns per unit of risk. Goldman Sachs Group is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  29,318  in Goldman Sachs Group on May 11, 2022 and sell it today you would earn a total of  4,150  from holding Goldman Sachs Group or generate 14.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Goldman Sachs Group

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Home Depot Price Channel

Goldman Sachs Group 
Goldman Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Goldman Sachs reported solid returns over the last few months and may actually be approaching a breakup point.

Goldman Price Channel

Home Depot and Goldman Sachs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Goldman Sachs

The main advantage of trading using opposite Home Depot and Goldman Sachs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Goldman Sachs 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 Goldman Sachs will offset losses from the drop in Goldman Sachs' long position.
The idea behind Home Depot and Goldman Sachs Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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