Correlation Between Microsoft and Home Depot
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Home Depot, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Home Depot.
Diversification Opportunities for Microsoft and Home Depot
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Home is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Home Depot go up and down completely randomly.
Pair Corralation between Microsoft and Home Depot
Given the investment horizon of 90 days Microsoft is expected to under-perform the Home Depot. In addition to that, Microsoft is 1.13 times more volatile than Home Depot. It trades about 0.0 of its total potential returns per unit of risk. Home Depot is currently generating about 0.19 per unit of volatility. If you would invest 40,289 in Home Depot on August 29, 2024 and sell it today you would earn a total of 2,663 from holding Home Depot or generate 6.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Home Depot
Performance |
| Timeline |
| Microsoft |
| Home Depot |
Microsoft and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Home Depot
The main advantage of trading using opposite Microsoft and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Home Depot vs. Floor Decor Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Lowes Companies |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm |