Correlation Between Home Depot and MORGAN

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Can any of the company-specific risk be diversified away by investing in both Home Depot and MORGAN 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 MORGAN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and MORGAN STANLEY 3125, you can compare the effects of market volatilities on Home Depot and MORGAN 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 MORGAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and MORGAN.

Diversification Opportunities for Home Depot and MORGAN

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Home and MORGAN is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and MORGAN STANLEY 3125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MORGAN STANLEY 3125 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 MORGAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MORGAN STANLEY 3125 has no effect on the direction of Home Depot i.e., Home Depot and MORGAN go up and down completely randomly.

Pair Corralation between Home Depot and MORGAN

Allowing for the 90-day total investment horizon Home Depot is expected to generate 4.36 times more return on investment than MORGAN. However, Home Depot is 4.36 times more volatile than MORGAN STANLEY 3125. It trades about 0.05 of its potential returns per unit of risk. MORGAN STANLEY 3125 is currently generating about 0.01 per unit of risk. If you would invest  36,272  in Home Depot on October 22, 2024 and sell it today you would earn a total of  4,666  from holding Home Depot or generate 12.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  MORGAN STANLEY 3125

 Performance 
       Timeline  
Home Depot 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
MORGAN STANLEY 3125 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MORGAN STANLEY 3125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MORGAN is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Home Depot and MORGAN Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and MORGAN

The main advantage of trading using opposite Home Depot and MORGAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, MORGAN 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 MORGAN will offset losses from the drop in MORGAN's long position.
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The idea behind Home Depot and MORGAN STANLEY 3125 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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