Correlation Between Home Depot and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Home Depot and Legg Mason 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 Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Legg Mason Partners, you can compare the effects of market volatilities on Home Depot and Legg Mason 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 Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Legg Mason.
Diversification Opportunities for Home Depot and Legg Mason
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Legg is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners 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 Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Partners has no effect on the direction of Home Depot i.e., Home Depot and Legg Mason go up and down completely randomly.
Pair Corralation between Home Depot and Legg Mason
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.18 times more return on investment than Legg Mason. However, Home Depot is 1.18 times more volatile than Legg Mason Partners. It trades about 0.24 of its potential returns per unit of risk. Legg Mason Partners is currently generating about -0.1 per unit of risk. If you would invest 39,245 in Home Depot on October 23, 2024 and sell it today you would earn a total of 1,693 from holding Home Depot or generate 4.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Legg Mason Partners
Performance |
| Timeline |
| Home Depot |
| Legg Mason Partners |
Home Depot and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Legg Mason
The main advantage of trading using opposite Home Depot and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Legg Mason 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 Legg Mason will offset losses from the drop in Legg Mason's long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
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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 Stocks Directory module to find actively traded stocks across global markets.
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