Correlation Between Home Depot and LL Flooring

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

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

Diversification Opportunities for Home Depot and LL Flooring

-0.29

Correlation Coefficient

Home Depot  LL Flooring

Very good diversification

The 3 months correlation between Home and LL Flooring is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and LL Flooring Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LL Flooring Holdings 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 LL Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LL Flooring Holdings has no effect on the direction of Home Depot i.e., Home Depot and LL Flooring go up and down completely randomly.

Pair Corralation between Home Depot and LL Flooring

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the LL Flooring. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.26 times less risky than LL Flooring. The stock trades about -0.42 of its potential returns per unit of risk. The LL Flooring Holdings is currently generating about -0.29 of returns per unit of risk over similar time horizon. If you would invest  177.00  in LL Flooring Holdings on January 20, 2024 and sell it today you would lose (19.00) from holding LL Flooring Holdings or give up 10.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Home Depot  vs.  LL Flooring Holdings

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 rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

LL Flooring Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LL Flooring Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Home Depot and LL Flooring

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

The idea behind Home Depot and LL Flooring Holdings 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.