Correlation Between Wesfarmers and Home Depot
Can any of the company-specific risk be diversified away by investing in both Wesfarmers 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 Wesfarmers and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers Ltd ADR and Home Depot, you can compare the effects of market volatilities on Wesfarmers 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 Wesfarmers with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Home Depot.
Diversification Opportunities for Wesfarmers and Home Depot
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Wesfarmers and Home is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Ltd ADR and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Wesfarmers 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 Wesfarmers Ltd ADR 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 Wesfarmers i.e., Wesfarmers and Home Depot go up and down completely randomly.
Pair Corralation between Wesfarmers and Home Depot
Assuming the 90 days horizon Wesfarmers is expected to generate 1.98 times less return on investment than Home Depot. In addition to that, Wesfarmers is 1.34 times more volatile than Home Depot. It trades about 0.01 of its total potential returns per unit of risk. Home Depot is currently generating about 0.03 per unit of volatility. If you would invest 40,078 in Home Depot on October 26, 2024 and sell it today you would earn a total of 932.00 from holding Home Depot or generate 2.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wesfarmers Ltd ADR vs. Home Depot
Performance |
| Timeline |
| Wesfarmers ADR |
| Home Depot |
Wesfarmers and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Home Depot
The main advantage of trading using opposite Wesfarmers and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers 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.| Wesfarmers vs. Haverty Furniture Companies | Wesfarmers vs. Arhaus Inc | Wesfarmers vs. Home Depot | Wesfarmers vs. Lowes Companies |
| 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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