Correlation Between Home Depot and Dell Technologies
Can any of the company-specific risk be diversified away by investing in both Home Depot and Dell Technologies 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 Dell Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and Dell Technologies, you can compare the effects of market volatilities on Home Depot and Dell Technologies 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 Dell Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Dell Technologies.
Diversification Opportunities for Home Depot and Dell Technologies
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Home and Dell is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Dell Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dell Technologies 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 The Home Depot are associated (or correlated) with Dell Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dell Technologies has no effect on the direction of Home Depot i.e., Home Depot and Dell Technologies go up and down completely randomly.
Pair Corralation between Home Depot and Dell Technologies
Assuming the 90 days trading horizon The Home Depot is expected to generate 0.47 times more return on investment than Dell Technologies. However, The Home Depot is 2.14 times less risky than Dell Technologies. It trades about 0.41 of its potential returns per unit of risk. Dell Technologies is currently generating about 0.04 per unit of risk. If you would invest 8,130 in The Home Depot on September 3, 2024 and sell it today you would earn a total of 947.00 from holding The Home Depot or generate 11.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. Dell Technologies
Performance |
| Timeline |
| Home Depot |
| Dell Technologies |
Home Depot and Dell Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Dell Technologies
The main advantage of trading using opposite Home Depot and Dell Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Dell Technologies 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 Dell Technologies will offset losses from the drop in Dell Technologies' long position.| Home Depot vs. Planet Fitness | Home Depot vs. Mitsubishi UFJ Financial | Home Depot vs. Credit Acceptance | Home Depot vs. Align Technology |
| Dell Technologies vs. Arista Networks | Dell Technologies vs. Western Digital | Dell Technologies vs. Positivo Tecnologia SA |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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