Correlation Between Home Depot and United Parcel

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

Diversification Opportunities for Home Depot and United Parcel

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Home Depot and United is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Home Depot i.e., Home Depot and United Parcel go up and down completely randomly.

Pair Corralation between Home Depot and United Parcel

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.18 times more return on investment than United Parcel. However, Home Depot is 1.18 times more volatile than United Parcel Service. It trades about -0.12 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.49 per unit of risk. If you would invest  29,337  in Home Depot on July 3, 2022 and sell it today you would lose (1,743)  from holding Home Depot or give up 5.94% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  United Parcel Service

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
0 of 100
Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. 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

United Parcel Service 
United Performance
0 of 100
Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

United Price Channel

Home Depot and United Parcel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and United Parcel

The main advantage of trading using opposite Home Depot and United Parcel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, United Parcel 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 United Parcel will offset losses from the drop in United Parcel's long position.
Home Depot vs. Amazon Inc
The idea behind Home Depot and United Parcel Service 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.
United Parcel vs. Amazon Inc
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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