Correlation Between Home Depot and Vmware

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

Diversification Opportunities for Home Depot and Vmware

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between Home Depot and Vmware is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Vmware Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vmware 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 Vmware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vmware Inc has no effect on the direction of Home Depot i.e., Home Depot and Vmware go up and down completely randomly.

Pair Corralation between Home Depot and Vmware

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.01 times more return on investment than Vmware. However, Home Depot is 1.01 times more volatile than Vmware Inc. It trades about 0.38 of its potential returns per unit of risk. Vmware Inc is currently generating about 0.2 per unit of risk. If you would invest  28,639  in Home Depot on May 11, 2022 and sell it today you would earn a total of  2,558  from holding Home Depot or generate 8.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Vmware Inc

 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

Vmware Inc 
Vmware Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Vmware Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady primary indicators, Vmware showed solid returns over the last few months and may actually be approaching a breakup point.

Vmware Price Channel

Home Depot and Vmware Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Vmware

The main advantage of trading using opposite Home Depot and Vmware positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Vmware 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 Vmware will offset losses from the drop in Vmware's long position.
The idea behind Home Depot and Vmware 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.
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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