Correlation Between Wayfair and Home Depot

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

Diversification Opportunities for Wayfair and Home Depot

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Wayfair and Home is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Wayfair 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 Wayfair are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Wayfair i.e., Wayfair and Home Depot go up and down completely randomly.

Pair Corralation between Wayfair and Home Depot

Taking into account the 90-day investment horizon Wayfair is expected to generate 3.11 times more return on investment than Home Depot. However, Wayfair is 3.11 times more volatile than Home Depot. It trades about 0.06 of its potential returns per unit of risk. Home Depot is currently generating about -0.05 per unit of risk. If you would invest  5,137  in Wayfair on January 17, 2024 and sell it today you would earn a total of  505.00  from holding Wayfair or generate 9.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Wayfair  vs.  Home Depot

 Performance 
       Timeline  
Wayfair 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.
Home Depot 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Wayfair and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wayfair and Home Depot

The main advantage of trading using opposite Wayfair and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.
The idea behind Wayfair and Home Depot 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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