Correlation Between Ford and Home Depot
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Home Depot, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Home Depot.
Diversification Opportunities for Ford and Home Depot
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Home is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Ford 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 Ford Motor 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 Ford i.e., Ford and Home Depot go up and down completely randomly.
Pair Corralation between Ford and Home Depot
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Home Depot. In addition to that, Ford is 1.77 times more volatile than Home Depot. It trades about 0.0 of its total potential returns per unit of risk. Home Depot is currently generating about 0.19 per unit of volatility. If you would invest 40,289 in Home Depot on August 29, 2024 and sell it today you would earn a total of 2,663 from holding Home Depot or generate 6.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Home Depot
Performance |
| Timeline |
| Ford Motor |
| Home Depot |
Ford and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Home Depot
The main advantage of trading using opposite Ford and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.The idea behind Ford Motor 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.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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