Correlation Between Best Buy and Home Depot
Can any of the company-specific risk be diversified away by investing in both Best Buy 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 Best Buy and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and Home Depot, you can compare the effects of market volatilities on Best Buy 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 Best Buy with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Home Depot.
Diversification Opportunities for Best Buy and Home Depot
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Best and Home is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and Home Depot go up and down completely randomly.
Pair Corralation between Best Buy and Home Depot
Considering the 90-day investment horizon Best Buy Co is expected to generate 1.17 times more return on investment than Home Depot. However, Best Buy is 1.17 times more volatile than Home Depot. It trades about -0.22 of its potential returns per unit of risk. Home Depot is currently generating about -0.45 per unit of risk. If you would invest 8,072 in Best Buy Co on January 25, 2024 and sell it today you would lose (568.00) from holding Best Buy Co or give up 7.04% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Best Buy Co vs. Home Depot
Performance |
Timeline |
Best Buy |
Home Depot |
Best Buy and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Best Buy and Home Depot
The main advantage of trading using opposite Best Buy and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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.Best Buy vs. Target | Best Buy vs. Walmart | Best Buy vs. Aquagold International | Best Buy vs. Thrivent High Yield |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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