Correlation Between Home Depot and LOWES

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

Diversification Opportunities for Home Depot and LOWES

-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Home and LOWES is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and LOWES PANIES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOWES PANIES INC 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 LOWES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOWES PANIES INC has no effect on the direction of Home Depot i.e., Home Depot and LOWES go up and down completely randomly.

Pair Corralation between Home Depot and LOWES

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.92 times more return on investment than LOWES. However, Home Depot is 1.08 times less risky than LOWES. It trades about 0.15 of its potential returns per unit of risk. LOWES PANIES INC is currently generating about -0.19 per unit of risk. If you would invest  40,615  in Home Depot on September 12, 2024 and sell it today you would earn a total of  1,644  from holding Home Depot or generate 4.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Home Depot  vs.  LOWES PANIES INC

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in January 2025.
LOWES PANIES INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days LOWES PANIES INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for LOWES PANIES INC investors.

Home Depot and LOWES Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and LOWES

The main advantage of trading using opposite Home Depot and LOWES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, LOWES 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 LOWES will offset losses from the drop in LOWES's long position.
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The idea behind Home Depot and LOWES PANIES INC 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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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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