Correlation Between Wells Fargo and Home Depot
Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and Home Depot, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Home Depot.
Diversification Opportunities for Wells Fargo and Home Depot
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Wells and Home is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Home Depot go up and down completely randomly.
Pair Corralation between Wells Fargo and Home Depot
Considering the 90-day investment horizon Wells Fargo is expected to generate 1.1 times more return on investment than Home Depot. However, Wells Fargo is 1.1 times more volatile than Home Depot. It trades about 0.27 of its potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of risk. If you would invest 3,815 in Wells Fargo on January 25, 2024 and sell it today you would earn a total of 2,245 from holding Wells Fargo or generate 58.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. Home Depot
Performance |
| Timeline |
| Wells Fargo |
| Home Depot |
Wells Fargo and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Home Depot
The main advantage of trading using opposite Wells Fargo and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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.| Wells Fargo vs. Bank of America | Wells Fargo vs. JPMorgan Chase Co | Wells Fargo vs. Toronto Dominion Bank | Wells Fargo vs. Nu Holdings |
| Home Depot vs. Floor Decor Holdings | Home Depot vs. LL Flooring Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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