Correlation Between Home Depot and ConocoPhillips

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Can any of the company-specific risk be diversified away by investing in both Home Depot and ConocoPhillips 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 ConocoPhillips into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and ConocoPhillips, you can compare the effects of market volatilities on Home Depot and ConocoPhillips 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 ConocoPhillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and ConocoPhillips.

Diversification Opportunities for Home Depot and ConocoPhillips

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Home Depot and ConocoPhillips is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Home Depot i.e., Home Depot and ConocoPhillips go up and down completely randomly.

Pair Corralation between Home Depot and ConocoPhillips

Allowing for the 90-day total investment horizon Home Depot is expected to generate 2.07 times less return on investment than ConocoPhillips. But when comparing it to its historical volatility, Home Depot is 1.61 times less risky than ConocoPhillips. It trades about 0.24 of its potential returns per unit of risk. ConocoPhillips is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  9,030  in ConocoPhillips on May 21, 2022 and sell it today you would earn a total of  1,458  from holding ConocoPhillips or generate 16.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  ConocoPhillips

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Depot Price Channel

ConocoPhillips 
ConocoPhillips Performance
0 of 100
Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ConocoPhillips is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

ConocoPhillips Price Channel

Home Depot and ConocoPhillips Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and ConocoPhillips

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

ConocoPhillips

Pair trading matchups for ConocoPhillips

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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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