Correlation Between Home Depot and RH
Can any of the company-specific risk be diversified away by investing in both Home Depot and RH 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 RH into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and RH, you can compare the effects of market volatilities on Home Depot and RH 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 RH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and RH.
Diversification Opportunities for Home Depot and RH
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Home and RH is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Home Depot i.e., Home Depot and RH go up and down completely randomly.
Pair Corralation between Home Depot and RH
Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.1 times less return on investment than RH. But when comparing it to its historical volatility, Home Depot is 2.67 times less risky than RH. It trades about 0.05 of its potential returns per unit of risk. RH is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 28,139 in RH on September 26, 2024 and sell it today you would earn a total of 12,684 from holding RH or generate 45.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. RH
Performance |
| Timeline |
| Home Depot |
| RH |
Home Depot and RH Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and RH
The main advantage of trading using opposite Home Depot and RH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, RH 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 RH will offset losses from the drop in RH's long position.| Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Kirklands | Home Depot vs. Live Ventures |
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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