Correlation Between Home Depot and US Bancorp

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

Diversification Opportunities for Home Depot and US Bancorp

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Home Depot and US Bancorp is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Home Depot i.e., Home Depot and US Bancorp go up and down completely randomly.

Pair Corralation between Home Depot and US Bancorp

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.19 times less return on investment than US Bancorp. But when comparing it to its historical volatility, Home Depot is 1.23 times less risky than US Bancorp. It trades about 0.03 of its potential returns per unit of risk. US Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,322  in US Bancorp on May 12, 2022 and sell it today you would earn a total of  1,465  from holding US Bancorp or generate 44.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  US Bancorp

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak 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

US Bancorp 
US Bancorp Performance
0 of 100
Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Bancorp Price Channel

Home Depot and US Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and US Bancorp

The main advantage of trading using opposite Home Depot and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.
The idea behind Home Depot and US Bancorp 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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