Correlation Between Home Depot and Microsoft
Can any of the company-specific risk be diversified away by investing in both Home Depot and Microsoft 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 Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and Microsoft, you can compare the effects of market volatilities on Home Depot and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Microsoft.
Diversification Opportunities for Home Depot and Microsoft
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Home and Microsoft is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 The Home Depot are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Home Depot i.e., Home Depot and Microsoft go up and down completely randomly.
Pair Corralation between Home Depot and Microsoft
Assuming the 90 days horizon The Home Depot is expected to generate 0.96 times more return on investment than Microsoft. However, The Home Depot is 1.04 times less risky than Microsoft. It trades about -0.14 of its potential returns per unit of risk. Microsoft is currently generating about -0.19 per unit of risk. If you would invest 840,000 in The Home Depot on November 25, 2024 and sell it today you would lose (40,916) from holding The Home Depot or give up 4.87% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
The Home Depot vs. Microsoft
Performance |
Timeline |
Home Depot |
Microsoft |
Home Depot and Microsoft Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Home Depot and Microsoft
The main advantage of trading using opposite Home Depot and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.Home Depot vs. First Republic Bank | ||
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Check out your portfolio center.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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