Correlation Between Home Depot and Microchip Technology
Can any of the company-specific risk be diversified away by investing in both Home Depot and Microchip Technology 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 Microchip Technology 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 Microchip Technology Incorporated, you can compare the effects of market volatilities on Home Depot and Microchip Technology 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 Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Microchip Technology.
Diversification Opportunities for Home Depot and Microchip Technology
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Home and Microchip is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of Home Depot i.e., Home Depot and Microchip Technology go up and down completely randomly.
Pair Corralation between Home Depot and Microchip Technology
Assuming the 90 days trading horizon The Home Depot is expected to generate 0.58 times more return on investment than Microchip Technology. However, The Home Depot is 1.73 times less risky than Microchip Technology. It trades about 0.03 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about -0.24 per unit of risk. If you would invest 8,477 in The Home Depot on November 5, 2024 and sell it today you would earn a total of 50.00 from holding The Home Depot or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Home Depot vs. Microchip Technology Incorpora
Performance |
| Timeline |
| Home Depot |
| Microchip Technology |
Home Depot and Microchip Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Microchip Technology
The main advantage of trading using opposite Home Depot and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Microchip Technology 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 Microchip Technology will offset losses from the drop in Microchip Technology's long position.| Home Depot vs. METISA Metalrgica Timboense | Home Depot vs. Metalurgica Gerdau SA | Home Depot vs. Tres Tentos Agroindustrial | Home Depot vs. JB Hunt Transport |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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