Correlation Between Home Depot and Sprott Energy

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Can any of the company-specific risk be diversified away by investing in both Home Depot and Sprott Energy 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 Sprott Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Sprott Energy Transition, you can compare the effects of market volatilities on Home Depot and Sprott Energy 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 Sprott Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Sprott Energy.

Diversification Opportunities for Home Depot and Sprott Energy

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Home and Sprott is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Sprott Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Energy Transition 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 Sprott Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Energy Transition has no effect on the direction of Home Depot i.e., Home Depot and Sprott Energy go up and down completely randomly.

Pair Corralation between Home Depot and Sprott Energy

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.86 times more return on investment than Sprott Energy. However, Home Depot is 1.17 times less risky than Sprott Energy. It trades about 0.19 of its potential returns per unit of risk. Sprott Energy Transition is currently generating about -0.08 per unit of risk. If you would invest  40,289  in Home Depot on August 28, 2024 and sell it today you would earn a total of  2,578  from holding Home Depot or generate 6.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Sprott Energy Transition

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
Sprott Energy Transition 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sprott Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Home Depot and Sprott Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Sprott Energy

The main advantage of trading using opposite Home Depot and Sprott Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Sprott Energy 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 Sprott Energy will offset losses from the drop in Sprott Energy's long position.
The idea behind Home Depot and Sprott Energy Transition 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.
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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