Correlation Between Chevron Corp and Home Depot

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

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

Diversification Opportunities for Chevron Corp and Home Depot

0.16

Correlation Coefficient

Chevron Corp  Home Depot

Average diversification

The 3 months correlation between Chevron and Home is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and Home Depot go up and down completely randomly.

Pair Corralation between Chevron Corp and Home Depot

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.86 times more return on investment than Home Depot. However, Chevron Corp is 1.17 times less risky than Home Depot. It trades about 0.17 of its potential returns per unit of risk. Home Depot is currently generating about -0.1 per unit of risk. If you would invest  14,070  in Chevron Corp on January 19, 2024 and sell it today you would earn a total of  1,570  from holding Chevron Corp or generate 11.16% return on investment over 90 days.

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

Chevron Corp  vs.  Home Depot

Chevron Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Chevron Corp and Home Depot

The main advantage of trading using opposite Chevron Corp and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.