Correlation Between Home Depot and National Vision

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

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

Diversification Opportunities for Home Depot and National Vision

0.82

Correlation Coefficient

Home Depot  National Vision

Very poor diversification

The 3 months correlation between Home and National is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and National Vision Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Vision 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 National Vision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Vision Holdings has no effect on the direction of Home Depot i.e., Home Depot and National Vision go up and down completely randomly.

Pair Corralation between Home Depot and National Vision

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.3 times more return on investment than National Vision. However, Home Depot is 3.3 times less risky than National Vision. It trades about 0.02 of its potential returns per unit of risk. National Vision Holdings is currently generating about -0.16 per unit of risk. If you would invest  33,611  in Home Depot on February 21, 2024 and sell it today you would earn a total of  171.00  from holding Home Depot or generate 0.51% return on investment over 90 days.

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

Home Depot  vs.  National Vision 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.

National Vision Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Vision Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Home Depot and National Vision

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

The idea behind Home Depot and National Vision 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.