Correlation Between Home Depot and Vista Outdoor

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

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

Diversification Opportunities for Home Depot and Vista Outdoor

0.15

Correlation Coefficient

Home Depot  Vista Outdoor

Average diversification

The 3 months correlation between Home and Vista is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Vista Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Outdoor 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 Vista Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Outdoor has no effect on the direction of Home Depot i.e., Home Depot and Vista Outdoor go up and down completely randomly.

Pair Corralation between Home Depot and Vista Outdoor

Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Vista Outdoor. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.44 times less risky than Vista Outdoor. The stock trades about -0.47 of its potential returns per unit of risk. The Vista Outdoor is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,283  in Vista Outdoor on January 26, 2024 and sell it today you would earn a total of  163.00  from holding Vista Outdoor or generate 4.96% return on investment over 90 days.

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

Home Depot  vs.  Vista Outdoor

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vista Outdoor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vista Outdoor are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Vista Outdoor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Depot and Vista Outdoor

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

The idea behind Home Depot and Vista Outdoor 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 Commodity Directory module to find actively traded commodities issued by global exchanges.