Correlation Between Home Depot and Plus500

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Can any of the company-specific risk be diversified away by investing in both Home Depot and Plus500 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 Plus500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Plus500, you can compare the effects of market volatilities on Home Depot and Plus500 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 Plus500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Plus500.

Diversification Opportunities for Home Depot and Plus500

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Home Depot and Plus500 is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Plus500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plus500 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 Plus500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plus500 has no effect on the direction of Home Depot i.e., Home Depot and Plus500 go up and down completely randomly.

Pair Corralation between Home Depot and Plus500

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.29 times less return on investment than Plus500. But when comparing it to its historical volatility, Home Depot is 1.67 times less risky than Plus500. It trades about 0.28 of its potential returns per unit of risk. Plus500 is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,783  in Plus500 on May 16, 2022 and sell it today you would earn a total of  175.00  from holding Plus500 or generate 9.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Plus500

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting 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

Plus500 
Plus500 Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Plus500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Plus500 may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Plus500 Price Channel

Home Depot and Plus500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Plus500

The main advantage of trading using opposite Home Depot and Plus500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Plus500 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 Plus500 will offset losses from the drop in Plus500's long position.
The idea behind Home Depot and Plus500 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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