Correlation Between Mitsubishi Materials and Home Depot

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Can any of the company-specific risk be diversified away by investing in both Mitsubishi 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 Mitsubishi 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 Mitsubishi Materials and The Home Depot, you can compare the effects of market volatilities on Mitsubishi 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 Mitsubishi Materials with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsubishi Materials and Home Depot.

Diversification Opportunities for Mitsubishi Materials and Home Depot

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between Mitsubishi and Home is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Materials and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Mitsubishi 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 Mitsubishi Materials 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 Mitsubishi Materials i.e., Mitsubishi Materials and Home Depot go up and down completely randomly.

Pair Corralation between Mitsubishi Materials and Home Depot

Assuming the 90 days trading horizon Mitsubishi Materials is expected to generate 1.56 times less return on investment than Home Depot. But when comparing it to its historical volatility, Mitsubishi Materials is 1.36 times less risky than Home Depot. It trades about 0.23 of its potential returns per unit of risk. The Home Depot is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  37,450  in The Home Depot on October 30, 2024 and sell it today you would earn a total of  2,460  from holding The Home Depot or generate 6.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Mitsubishi Materials  vs.  The Home Depot

 Performance 
       Timeline  
Mitsubishi Materials 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Home Depot 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Mitsubishi Materials and Home Depot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mitsubishi Materials and Home Depot

The main advantage of trading using opposite Mitsubishi Materials and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi 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.
The idea behind Mitsubishi Materials and The Home Depot pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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