Correlation Between Home Depot and Everi Holdings

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

By analyzing existing cross correlation between Home Depot and Everi Holdings, you can compare the effects of market volatilities on Home Depot and Everi Holdings 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 Everi Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Everi Holdings.

Diversification Opportunities for Home Depot and Everi Holdings

0.28

Correlation Coefficient

Home Depot  Everi Holdings

Modest diversification

The 3 months correlation between Home and Everi is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Everi Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everi 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 Everi Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everi Holdings has no effect on the direction of Home Depot i.e., Home Depot and Everi Holdings go up and down completely randomly.

Pair Corralation between Home Depot and Everi Holdings

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.52 times more return on investment than Everi Holdings. However, Home Depot is 1.93 times less risky than Everi Holdings. It trades about -0.43 of its potential returns per unit of risk. Everi Holdings is currently generating about -0.46 per unit of risk. If you would invest  36,803  in Home Depot on January 29, 2024 and sell it today you would lose (3,294) from holding Home Depot or give up 8.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Home Depot  vs.  Everi Holdings

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Everi Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everi Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting 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 recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Home Depot and Everi Holdings

The main advantage of trading using opposite Home Depot and Everi Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Everi Holdings 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 Everi Holdings will offset losses from the drop in Everi Holdings' long position.

The idea behind Home Depot and Everi Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.