Correlation Between Home Depot and Floor Decor
Can any of the company-specific risk be diversified away by investing in both Home Depot and Floor Decor 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 Floor Decor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Floor Decor Holdings, you can compare the effects of market volatilities on Home Depot and Floor Decor 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 Floor Decor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Floor Decor.
Diversification Opportunities for Home Depot and Floor Decor
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Floor is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings 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 Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of Home Depot i.e., Home Depot and Floor Decor go up and down completely randomly.
Pair Corralation between Home Depot and Floor Decor
Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.62 times more return on investment than Floor Decor. However, Home Depot is 1.62 times less risky than Floor Decor. It trades about -0.61 of its potential returns per unit of risk. Floor Decor Holdings is currently generating about -0.46 per unit of risk. If you would invest 39,520 in Home Depot on January 21, 2024 and sell it today you would lose (5,984) from holding Home Depot or give up 15.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Home Depot vs. Floor Decor Holdings
Performance |
| Timeline |
| Home Depot |
| Floor Decor Holdings |
Home Depot and Floor Decor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Floor Decor
The main advantage of trading using opposite Home Depot and Floor Decor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Floor Decor 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 Floor Decor will offset losses from the drop in Floor Decor's long position.| Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Kirklands | Home Depot vs. Live Ventures |
| Floor Decor vs. Arhaus Inc | Floor Decor vs. Haverty Furniture Companies | Floor Decor vs. Kirklands | Floor Decor vs. Live Ventures |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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