Correlation Between Home Depot and PetMed Express

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

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

Diversification Opportunities for Home Depot and PetMed Express

0.84

Correlation Coefficient

Home Depot  PetMed Express

Very poor diversification

The 3 months correlation between Home and PetMed is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and PetMed Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetMed Express 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 PetMed Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetMed Express has no effect on the direction of Home Depot i.e., Home Depot and PetMed Express go up and down completely randomly.

Pair Corralation between Home Depot and PetMed Express

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the PetMed Express. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 3.53 times less risky than PetMed Express. The stock trades about -0.18 of its potential returns per unit of risk. The PetMed Express is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  408.00  in PetMed Express on March 11, 2024 and sell it today you would earn a total of  26.00  from holding PetMed Express or generate 6.37% return on investment over 90 days.

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

Home Depot  vs.  PetMed Express

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 inconsistent 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.

PetMed Express

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetMed Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Home Depot and PetMed Express

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

The idea behind Home Depot and PetMed Express 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .