Correlation Between Home Depot and Via Renewables

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

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

Diversification Opportunities for Home Depot and Via Renewables

0.08

Correlation Coefficient

Home Depot  Via Renewables

Significant diversification

The 3 months correlation between Home and Via is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Via Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Via Renewables 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 Via Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Via Renewables has no effect on the direction of Home Depot i.e., Home Depot and Via Renewables go up and down completely randomly.

Pair Corralation between Home Depot and Via Renewables

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Via Renewables. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 2.22 times less risky than Via Renewables. The stock trades about -0.43 of its potential returns per unit of risk. The Via Renewables is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,020  in Via Renewables on January 29, 2024 and sell it today you would lose (70.00) from holding Via Renewables or give up 3.47% of portfolio value over 90 days.

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

Home Depot  vs.  Via Renewables

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Via Renewables

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Via Renewables are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Via Renewables may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Home Depot and Via Renewables

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

The idea behind Home Depot and Via Renewables 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 Global Correlations module to find global opportunities by holding instruments from different markets.