Correlation Between STMicroelectronics and Home Depot
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics 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 STMicroelectronics and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV and The Home Depot, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Home Depot.
Diversification Opportunities for STMicroelectronics and Home Depot
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between STMicroelectronics and Home is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and STMicroelectronics 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 STMicroelectronics NV 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 STMicroelectronics i.e., STMicroelectronics and Home Depot go up and down completely randomly.
Pair Corralation between STMicroelectronics and Home Depot
Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Home Depot. In addition to that, STMicroelectronics is 1.83 times more volatile than The Home Depot. It trades about -0.04 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.11 per unit of volatility. If you would invest 5,051 in The Home Depot on August 31, 2024 and sell it today you would earn a total of 4,018 from holding The Home Depot or generate 79.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 69.25% |
| Values | Daily Returns |
STMicroelectronics NV vs. The Home Depot
Performance |
| Timeline |
| STMicroelectronics |
| Home Depot |
STMicroelectronics and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and Home Depot
The main advantage of trading using opposite STMicroelectronics and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV 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.| Home Depot vs. Fras le SA | Home Depot vs. Western Digital | Home Depot vs. Energisa SA | Home Depot vs. Clave Indices De |
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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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