Correlation Between Dow Jones and Home Depot
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Home Depot, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Home Depot.
Diversification Opportunities for Dow Jones and Home Depot
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Home is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Home Depot go up and down completely randomly.
Pair Corralation between Dow Jones and Home Depot
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.48 times less return on investment than Home Depot. But when comparing it to its historical volatility, Dow Jones Industrial is 1.82 times less risky than Home Depot. It trades about 0.13 of its potential returns per unit of risk. Home Depot is currently generating about 0.11 of returns per unit of risk over similar time horizon. 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 Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Home Depot
Performance |
| Timeline |
Dow Jones and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Home Depot
Pair trading matchups for Home Depot
Pair Trading with Dow Jones and Home Depot
The main advantage of trading using opposite Dow Jones and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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