Correlation Between Advance Auto and Home Depot
Can any of the company-specific risk be diversified away by investing in both Advance Auto 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 Advance Auto and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advance Auto Parts and Home Depot, you can compare the effects of market volatilities on Advance Auto 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 Advance Auto with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advance Auto and Home Depot.
Diversification Opportunities for Advance Auto and Home Depot
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Advance and Home is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Advance Auto 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 Advance Auto Parts 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 Advance Auto i.e., Advance Auto and Home Depot go up and down completely randomly.
Pair Corralation between Advance Auto and Home Depot
Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the Home Depot. In addition to that, Advance Auto is 2.27 times more volatile than Home Depot. It trades about -0.02 of its total potential returns per unit of risk. Home Depot is currently generating about 0.11 per unit of volatility. If you would invest 30,518 in Home Depot on August 25, 2024 and sell it today you would earn a total of 11,482 from holding Home Depot or generate 37.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Advance Auto Parts vs. Home Depot
Performance |
| Timeline |
| Advance Auto Parts |
| Home Depot |
Advance Auto and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advance Auto and Home Depot
The main advantage of trading using opposite Advance Auto and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto 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.| Advance Auto vs. AutoZone | Advance Auto vs. Tractor Supply | Advance Auto vs. Genuine Parts Co | Advance Auto vs. Five Below |
| Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Kirklands | Home Depot vs. Haverty Furniture Companies |
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 the Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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