Correlation Between Amazon CDR and HOME DEPOT

Can any of the company-specific risk be diversified away by investing in both Amazon CDR 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 Amazon CDR and HOME DEPOT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Amazon CDR and HOME DEPOT CDR, you can compare the effects of market volatilities on Amazon CDR 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 Amazon CDR with a short position of HOME DEPOT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon CDR and HOME DEPOT.

Diversification Opportunities for Amazon CDR and HOME DEPOT

0.46

Correlation Coefficient

Amazon CDR  HOME DEPOT

Very weak diversification

The 3 months correlation between Amazon and HOME is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and HOME DEPOT CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT CDR and Amazon CDR 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 Amazon CDR 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 CDR has no effect on the direction of Amazon CDR i.e., Amazon CDR and HOME DEPOT go up and down completely randomly.

Pair Corralation between Amazon CDR and HOME DEPOT

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.45 times more return on investment than HOME DEPOT. However, Amazon CDR is 1.45 times more volatile than HOME DEPOT CDR. It trades about 0.28 of its potential returns per unit of risk. HOME DEPOT CDR is currently generating about 0.06 per unit of risk. If you would invest  1,976  in Amazon CDR on April 20, 2025 and sell it today you would earn a total of  678.00  from holding Amazon CDR or generate 34.31% return on investment over 90 days.

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

Amazon CDR  vs.  HOME DEPOT CDR

Amazon CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon CDR displayed solid returns over the last few months and may actually be approaching a breakup point.

HOME DEPOT CDR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HOME DEPOT CDR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HOME DEPOT is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Amazon CDR and HOME DEPOT

The main advantage of trading using opposite Amazon CDR and HOME DEPOT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon CDR 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 Amazon CDR and HOME DEPOT CDR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.