Correlation Between Lowes Companies and Home Depot
Can any of the company-specific risk be diversified away by investing in both Lowes Companies and Home Depot 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 Lowes Companies and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lowes Companies and Home Depot, you can compare the effects of market volatilities on Lowes Companies and Home Depot 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 Lowes Companies with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lowes Companies and Home Depot.
Diversification Opportunities for Lowes Companies and Home Depot
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Lowes and Home is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Lowes Companies 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 Lowes Companies are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Lowes Companies i.e., Lowes Companies and Home Depot go up and down completely randomly.
Pair Corralation between Lowes Companies and Home Depot
Considering the 90-day investment horizon Lowes Companies is expected to under-perform the Home Depot. In addition to that, Lowes Companies is 1.1 times more volatile than Home Depot. It trades about -0.04 of its total potential returns per unit of risk. Home Depot is currently generating about 0.09 per unit of volatility. If you would invest 39,964 in Home Depot on August 24, 2024 and sell it today you would earn a total of 1,081 from holding Home Depot or generate 2.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lowes Companies vs. Home Depot
Performance |
| Timeline |
| Lowes Companies |
| Home Depot |
Lowes Companies and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lowes Companies and Home Depot
The main advantage of trading using opposite Lowes Companies and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| Lowes Companies vs. Floor Decor Holdings | Lowes Companies vs. Arhaus Inc | Lowes Companies vs. Haverty Furniture Companies | Lowes Companies vs. Home Depot |
| Home Depot vs. Live Ventures | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies | Home Depot vs. Tile Shop Holdings |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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