Correlation Between Intel and Home Depot

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

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

Diversification Opportunities for Intel and Home Depot

0.63

Correlation Coefficient

Intel  Home Depot

Poor diversification

The 3 months correlation between Intel and Home is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Intel and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Intel 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 Intel 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 Intel i.e., Intel and Home Depot go up and down completely randomly.

Pair Corralation between Intel and Home Depot

Given the investment horizon of 90 days Intel is expected to under-perform the Home Depot. In addition to that, Intel is 2.9 times more volatile than Home Depot. It trades about -0.52 of its total potential returns per unit of risk. Home Depot is currently generating about -0.43 per unit of volatility. 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	Significant
Accuracy	100.0%
Values	Daily Returns

Intel  vs.  Home Depot

Intel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intel 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 rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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.

Pair Trading with Intel and Home Depot

The main advantage of trading using opposite Intel and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intel 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 Intel and 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..