Correlation Between Avis Budget and Home Depot

Can any of the company-specific risk be diversified away by investing in both Avis Budget 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 Avis Budget and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avis Budget Group and The Home Depot, you can compare the effects of market volatilities on Avis Budget 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 Avis Budget with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avis Budget and Home Depot.

Diversification Opportunities for Avis Budget and Home Depot

-0.06

Correlation Coefficient

Avis Budget  Home Depot

Good diversification

The 3 months correlation between Avis and Home is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Avis Budget Group and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Avis Budget 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 Avis Budget Group 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 Avis Budget i.e., Avis Budget and Home Depot go up and down completely randomly.

Pair Corralation between Avis Budget and Home Depot

Assuming the 90 days trading horizon Avis Budget Group is expected to under-perform the Home Depot. In addition to that, Avis Budget is 1.89 times more volatile than The Home Depot. It trades about -0.08 of its total potential returns per unit of risk. The Home Depot is currently generating about -0.01 per unit of volatility. If you would invest  627,100  in The Home Depot on January 30, 2024 and sell it today you would lose (53,200) from holding The Home Depot or give up 8.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.71%
Values	Daily Returns

Avis Budget Group  vs.  The Home Depot

Avis Budget Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avis Budget Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Home Depot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Avis Budget and Home Depot

The main advantage of trading using opposite Avis Budget and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avis Budget 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 Avis Budget Group and The 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.