Correlation Between Home Depot and 3M
Can any of the company-specific risk be diversified away by investing in both Home Depot and 3M 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 3M 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 3M Company, you can compare the effects of market volatilities on Home Depot and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and 3M.
Diversification Opportunities for Home Depot and 3M
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and 3M is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Home Depot i.e., Home Depot and 3M go up and down completely randomly.
Pair Corralation between Home Depot and 3M
Assuming the 90 days trading horizon The Home Depot is expected to generate 0.89 times more return on investment than 3M. However, The Home Depot is 1.12 times less risky than 3M. It trades about 0.33 of its potential returns per unit of risk. 3M Company is currently generating about 0.18 per unit of risk. If you would invest 8,107 in The Home Depot on August 30, 2024 and sell it today you would earn a total of 785.00 from holding The Home Depot or generate 9.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
The Home Depot vs. 3M Company
Performance |
| Timeline |
| Home Depot |
| 3M Company |
Home Depot and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and 3M
The main advantage of trading using opposite Home Depot and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.| Home Depot vs. Bombril SA | Home Depot vs. Banco do Estado | Home Depot vs. CA Modas SA | Home Depot vs. Direcional Engenharia SA |
| 3M vs. Charter Communications | 3M vs. Autohome | 3M vs. Metalurgica Gerdau SA | 3M vs. American Airlines Group |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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