Correlation Between Home Depot and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Home Depot and Verizon Communications 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 Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Verizon Communications, you can compare the effects of market volatilities on Home Depot and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Verizon Communications.
Diversification Opportunities for Home Depot and Verizon Communications
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Home and Verizon is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Home Depot i.e., Home Depot and Verizon Communications go up and down completely randomly.
Pair Corralation between Home Depot and Verizon Communications
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.95 times more return on investment than Verizon Communications. However, Home Depot is 1.06 times less risky than Verizon Communications. It trades about 0.06 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 31,147 in Home Depot on September 2, 2024 and sell it today you would earn a total of 11,766 from holding Home Depot or generate 37.78% 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. Verizon Communications
Performance |
| Timeline |
| Home Depot |
| Verizon Communications |
Home Depot and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Verizon Communications
The main advantage of trading using opposite Home Depot and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
| Verizon Communications vs. T Mobile | Verizon Communications vs. Comcast Corp | Verizon Communications vs. Lumen Technologies | Verizon Communications vs. Charter Communications |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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