Correlation Between Home Depot and WELLTOWER

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

Diversification Opportunities for Home Depot and WELLTOWER

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between Home and WELLTOWER is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and WELLTOWER INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WELLTOWER INC 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 WELLTOWER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WELLTOWER INC has no effect on the direction of Home Depot i.e., Home Depot and WELLTOWER go up and down completely randomly.

Pair Corralation between Home Depot and WELLTOWER

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.54 times more return on investment than WELLTOWER. However, Home Depot is 2.54 times more volatile than WELLTOWER INC. It trades about 0.06 of its potential returns per unit of risk. WELLTOWER INC is currently generating about 0.04 per unit of risk. If you would invest  30,181  in Home Depot on August 31, 2024 and sell it today you would earn a total of  12,732  from holding Home Depot or generate 42.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy97.28%
ValuesDaily Returns

Home Depot  vs.  WELLTOWER INC

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
WELLTOWER INC 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in WELLTOWER INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, WELLTOWER is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Home Depot and WELLTOWER Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and WELLTOWER

The main advantage of trading using opposite Home Depot and WELLTOWER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, WELLTOWER 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 WELLTOWER will offset losses from the drop in WELLTOWER's long position.
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The idea behind Home Depot and WELLTOWER INC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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