Correlation Between Visa and Home Depot
Can any of the company-specific risk be diversified away by investing in both Visa and Home Depot 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 Visa and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and The Home Depot, you can compare the effects of market volatilities on Visa and Home Depot 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 Visa with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Home Depot.
Diversification Opportunities for Visa and Home Depot
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Visa and Home is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Visa 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 Visa Class A are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Visa i.e., Visa and Home Depot go up and down completely randomly.
Pair Corralation between Visa and Home Depot
Taking into account the 90-day investment horizon Visa is expected to generate 1.21 times less return on investment than Home Depot. But when comparing it to its historical volatility, Visa Class A is 1.31 times less risky than Home Depot. It trades about 0.34 of its potential returns per unit of risk. The Home Depot is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 790,799 in The Home Depot on September 2, 2024 and sell it today you would earn a total of 82,298 from holding The Home Depot or generate 10.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. The Home Depot
Performance |
| Timeline |
| Visa Class A |
| Home Depot |
Visa and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Home Depot
The main advantage of trading using opposite Visa and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
| Home Depot vs. Deutsche Bank Aktiengesellschaft | Home Depot vs. First Republic Bank | Home Depot vs. Monster Beverage Corp | Home Depot vs. Grupo Hotelero Santa |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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