Correlation Between Home Depot and VMG Consumer
Can any of the company-specific risk be diversified away by investing in both Home Depot and VMG Consumer 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 VMG Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and VMG Consumer Acquisition, you can compare the effects of market volatilities on Home Depot and VMG Consumer 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 VMG Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and VMG Consumer.
Diversification Opportunities for Home Depot and VMG Consumer
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and VMG is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and VMG Consumer Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VMG Consumer Acquisition 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 VMG Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VMG Consumer Acquisition has no effect on the direction of Home Depot i.e., Home Depot and VMG Consumer go up and down completely randomly.
Pair Corralation between Home Depot and VMG Consumer
Allowing for the 90-day total investment horizon Home Depot is expected to generate 47.11 times more return on investment than VMG Consumer. However, Home Depot is 47.11 times more volatile than VMG Consumer Acquisition. It trades about 0.09 of its potential returns per unit of risk. VMG Consumer Acquisition is currently generating about -0.28 per unit of risk. If you would invest 27,542 in Home Depot on August 30, 2024 and sell it today you would earn a total of 15,177 from holding Home Depot or generate 55.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 3.3% |
| Values | Daily Returns |
Home Depot vs. VMG Consumer Acquisition
Performance |
| Timeline |
| Home Depot |
| VMG Consumer Acquisition |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Home Depot and VMG Consumer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and VMG Consumer
The main advantage of trading using opposite Home Depot and VMG Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, VMG Consumer 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 VMG Consumer will offset losses from the drop in VMG Consumer'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 |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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