Correlation Between Home Depot and Sodexo PK

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

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

Diversification Opportunities for Home Depot and Sodexo PK

-0.6

Correlation Coefficient

Home Depot  Sodexo PK

Excellent diversification

The 3 months correlation between Home and Sodexo is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Sodexo PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo PK 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 Sodexo PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo PK has no effect on the direction of Home Depot i.e., Home Depot and Sodexo PK go up and down completely randomly.

Pair Corralation between Home Depot and Sodexo PK

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.72 times more return on investment than Sodexo PK. However, Home Depot is 1.38 times less risky than Sodexo PK. It trades about 0.2 of its potential returns per unit of risk. Sodexo PK is currently generating about -0.07 per unit of risk. If you would invest  37,044  in Home Depot on August 28, 2024 and sell it today you would earn a total of  5,908  from holding Home Depot or generate 15.95% return on investment over 90 days.

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

Home Depot  vs.  Sodexo PK

Home Depot

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sodexo PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sodexo PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Home Depot and Sodexo PK

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

The idea behind Home Depot and Sodexo PK 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.