Correlation Between Home Depot and Zillow Group

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

Diversification Opportunities for Home Depot and Zillow Group

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Home and Zillow is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Zillow Group Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group Class 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 Zillow Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group Class has no effect on the direction of Home Depot i.e., Home Depot and Zillow Group go up and down completely randomly.

Pair Corralation between Home Depot and Zillow Group

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.35 times more return on investment than Zillow Group. However, Home Depot is 2.87 times less risky than Zillow Group. It trades about 0.19 of its potential returns per unit of risk. Zillow Group Class is currently generating about -0.02 per unit of risk. If you would invest  35,078  in Home Depot on November 24, 2023 and sell it today you would earn a total of  1,335  from holding Home Depot or generate 3.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Zillow Group Class

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.
Zillow Group Class 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group Class are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Zillow Group showed solid returns over the last few months and may actually be approaching a breakup point.

Home Depot and Zillow Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Zillow Group

The main advantage of trading using opposite Home Depot and Zillow Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Zillow Group 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 Zillow Group will offset losses from the drop in Zillow Group's long position.
The idea behind Home Depot and Zillow Group Class 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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