Correlation Between SP 500 and Home Depot

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Can any of the company-specific risk be diversified away by investing in both SP 500 and Home Depot 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 SP 500 and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP 500 Utilities and Home Depot, you can compare the effects of market volatilities on SP 500 and Home Depot 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 SP 500 with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and Home Depot.

Diversification Opportunities for SP 500 and Home Depot

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between SP 500 and Home Depot is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 Utilities and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and SP 500 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 SP 500 Utilities are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of SP 500 i.e., SP 500 and Home Depot go up and down completely randomly.

Pair Corralation between SP 500 and Home Depot

Considering the 90-day investment horizon SP 500 is expected to generate 1.36 times less return on investment than Home Depot. But when comparing it to its historical volatility, SP 500 Utilities is 1.45 times less risky than Home Depot. It trades about 0.04 of its potential returns per unit of risk. Home Depot is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  25,595  in Home Depot on August 30, 2022 and sell it today you would earn a total of  6,297  from holding Home Depot or generate 24.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

SP 500 Utilities  vs.  Home Depot

 Performance (%) 
       Timeline  
SP 500 Utilities 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, SP 500 is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SP 500 Price Channel

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 unsteady fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Home Depot Price Channel

SP 500 and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SP 500 and Home Depot

The main advantage of trading using opposite SP 500 and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.
SP 500 vs. Gx Renewable Energy
The idea behind SP 500 Utilities and Home Depot 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.
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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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