Correlation Between Home Depot and Madison Small
Can any of the company-specific risk be diversified away by investing in both Home Depot and Madison Small 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 Madison Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Madison Small Cap, you can compare the effects of market volatilities on Home Depot and Madison Small 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 Madison Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Madison Small.
Diversification Opportunities for Home Depot and Madison Small
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Home and Madison is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Madison Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Small Cap 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 Home Depot are associated (or correlated) with Madison Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Small Cap has no effect on the direction of Home Depot i.e., Home Depot and Madison Small go up and down completely randomly.
Pair Corralation between Home Depot and Madison Small
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.65 times more return on investment than Madison Small. However, Home Depot is 1.65 times more volatile than Madison Small Cap. It trades about 0.22 of its potential returns per unit of risk. Madison Small Cap is currently generating about 0.18 per unit of risk. If you would invest 38,918 in Home Depot on November 4, 2024 and sell it today you would earn a total of 2,280 from holding Home Depot or generate 5.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Madison Small Cap
Performance |
| Timeline |
| Home Depot |
| Madison Small Cap |
Home Depot and Madison Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Madison Small
The main advantage of trading using opposite Home Depot and Madison Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Madison Small 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 Madison Small will offset losses from the drop in Madison Small's long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
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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 the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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