Correlation Between Wayfair and Home Depot
Can any of the company-specific risk be diversified away by investing in both Wayfair 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 Wayfair and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and Home Depot, you can compare the effects of market volatilities on Wayfair 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 Wayfair with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Home Depot.
Diversification Opportunities for Wayfair and Home Depot
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Wayfair and Home is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and Home Depot go up and down completely randomly.
Pair Corralation between Wayfair and Home Depot
Taking into account the 90-day investment horizon Wayfair is expected to generate 2.92 times more return on investment than Home Depot. However, Wayfair is 2.92 times more volatile than Home Depot. It trades about 0.32 of its potential returns per unit of risk. Home Depot is currently generating about 0.01 per unit of risk. If you would invest 4,026 in Wayfair on September 18, 2024 and sell it today you would earn a total of 1,018 from holding Wayfair or generate 25.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. Home Depot
Performance |
| Timeline |
| Wayfair |
| Home Depot |
Wayfair and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and Home Depot
The main advantage of trading using opposite Wayfair and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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.The idea behind Wayfair and Home Depot 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.| Home Depot vs. Aquagold International | Home Depot vs. Thrivent High Yield | Home Depot vs. Morningstar Unconstrained Allocation | Home Depot vs. Via Renewables |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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