Correlation Between Basic Materials and Lowes Companies
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Lowes Companies 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 Basic Materials and Lowes Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Lowes Companies, you can compare the effects of market volatilities on Basic Materials and Lowes Companies 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 Basic Materials with a short position of Lowes Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Lowes Companies.
Diversification Opportunities for Basic Materials and Lowes Companies
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and Lowes is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies and Basic Materials 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 Basic Materials are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Basic Materials i.e., Basic Materials and Lowes Companies go up and down completely randomly.
Pair Corralation between Basic Materials and Lowes Companies
Assuming the 90 days trading horizon Basic Materials is expected to generate 3.89 times less return on investment than Lowes Companies. But when comparing it to its historical volatility, Basic Materials is 1.6 times less risky than Lowes Companies. It trades about 0.07 of its potential returns per unit of risk. Lowes Companies is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,690 in Lowes Companies on September 1, 2024 and sell it today you would earn a total of 2,494 from holding Lowes Companies or generate 43.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. Lowes Companies
Performance |
| Timeline |
Basic Materials and Lowes Companies Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Lowes Companies
Pair trading matchups for Lowes Companies
Pair Trading with Basic Materials and Lowes Companies
The main advantage of trading using opposite Basic Materials and Lowes Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Lowes Companies 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 Companies will offset losses from the drop in Lowes Companies' long position.| Basic Materials vs. GP Investments | Basic Materials vs. TAL Education Group | Basic Materials vs. Deutsche Bank Aktiengesellschaft | Basic Materials vs. STMicroelectronics NV |
| Lowes Companies vs. Ross Stores | Lowes Companies vs. Lupatech SA | Lowes Companies vs. Southwest Airlines Co | Lowes Companies vs. New Oriental Education |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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