Correlation Between Home Depot and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Home Depot and Costco Wholesale 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 Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and Costco Wholesale, you can compare the effects of market volatilities on Home Depot and Costco Wholesale 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 Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Costco Wholesale.
Diversification Opportunities for Home Depot and Costco Wholesale
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Costco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 The Home Depot are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Home Depot i.e., Home Depot and Costco Wholesale go up and down completely randomly.
Pair Corralation between Home Depot and Costco Wholesale
Assuming the 90 days horizon The Home Depot is expected to generate 0.98 times more return on investment than Costco Wholesale. However, The Home Depot is 1.02 times less risky than Costco Wholesale. It trades about 0.23 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.02 per unit of risk. If you would invest 790,000 in The Home Depot on October 25, 2024 and sell it today you would earn a total of 50,475 from holding The Home Depot or generate 6.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. Costco Wholesale
Performance |
| Timeline |
| Home Depot |
| Costco Wholesale |
Home Depot and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Costco Wholesale
The main advantage of trading using opposite Home Depot and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Costco Wholesale 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 Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.| Home Depot vs. Grupo Sports World | Home Depot vs. Taiwan Semiconductor Manufacturing | Home Depot vs. Verizon Communications | Home Depot vs. Grupo Carso SAB |
| Costco Wholesale vs. The Home Depot | Costco Wholesale vs. Hoteles City Express | Costco Wholesale vs. KB Home | Costco Wholesale vs. Applied Materials |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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