Correlation Between Home Depot and Verizon Communications

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

Diversification Opportunities for Home Depot and Verizon Communications

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Home Depot and Verizon is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Home Depot i.e., Home Depot and Verizon Communications go up and down completely randomly.

Pair Corralation between Home Depot and Verizon Communications

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.51 times more return on investment than Verizon Communications. However, Home Depot is 1.51 times more volatile than Verizon Communications. It trades about -0.22 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.34 per unit of risk. If you would invest  29,617  in Home Depot on June 27, 2022 and sell it today you would lose (2,523)  from holding Home Depot or give up 8.52% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Verizon Communications

 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot Price Channel

Verizon Communications 
Verizon Performance
0 of 100
Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in October 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Verizon Price Channel

Home Depot and Verizon Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Verizon Communications

The main advantage of trading using opposite Home Depot and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.
Home Depot vs. Industrias Bachoco SA
The idea behind Home Depot and Verizon Communications 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.
Verizon Communications vs. BUSHVELD MINERALS LTD
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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