Correlation Between MP Materials and Home Depot
Can any of the company-specific risk be diversified away by investing in both MP Materials 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 MP Materials and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MP Materials Corp and The Home Depot, you can compare the effects of market volatilities on MP Materials 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 MP Materials with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Home Depot.
Diversification Opportunities for MP Materials and Home Depot
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between M2PM34 and Home is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and MP 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 MP Materials Corp 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 MP Materials i.e., MP Materials and Home Depot go up and down completely randomly.
Pair Corralation between MP Materials and Home Depot
Assuming the 90 days trading horizon MP Materials Corp is expected to under-perform the Home Depot. In addition to that, MP Materials is 2.7 times more volatile than The Home Depot. It trades about -0.43 of its total potential returns per unit of risk. The Home Depot is currently generating about -0.32 per unit of volatility. If you would invest 9,351 in The Home Depot on October 9, 2024 and sell it today you would lose (874.00) from holding The Home Depot or give up 9.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 94.12% |
| Values | Daily Returns |
MP Materials Corp vs. The Home Depot
Performance |
| Timeline |
| MP Materials Corp |
| Home Depot |
MP Materials and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MP Materials and Home Depot
The main advantage of trading using opposite MP Materials and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials 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.| MP Materials vs. Clover Health Investments, | MP Materials vs. Patria Investments Limited | MP Materials vs. G2D Investments | MP Materials vs. Ameriprise Financial |
| Home Depot vs. CM Hospitalar SA | Home Depot vs. UnitedHealth Group Incorporated | Home Depot vs. Vulcan Materials | Home Depot vs. Metalrgica Riosulense SA |
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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