Correlation Between Western Midstream and Home Depot
Can any of the company-specific risk be diversified away by investing in both Western Midstream 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 Western Midstream and Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Midstream Partners and Home Depot, you can compare the effects of market volatilities on Western Midstream 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 Western Midstream with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and Home Depot.
Diversification Opportunities for Western Midstream and Home Depot
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Western and Home is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Western Midstream 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 Western Midstream Partners 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 Western Midstream i.e., Western Midstream and Home Depot go up and down completely randomly.
Pair Corralation between Western Midstream and Home Depot
Considering the 90-day investment horizon Western Midstream is expected to generate 1.74 times less return on investment than Home Depot. In addition to that, Western Midstream is 1.18 times more volatile than Home Depot. It trades about 0.11 of its total potential returns per unit of risk. Home Depot is currently generating about 0.23 per unit of volatility. If you would invest 36,283 in Home Depot on September 3, 2024 and sell it today you would earn a total of 6,630 from holding Home Depot or generate 18.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Midstream Partners vs. Home Depot
Performance |
| Timeline |
| Western Midstream |
| Home Depot |
Western Midstream and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Midstream and Home Depot
The main advantage of trading using opposite Western Midstream and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream 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.| Western Midstream vs. MPLX LP | Western Midstream vs. Plains All American | Western Midstream vs. SPACE | Western Midstream vs. T Rowe Price |
| Home Depot vs. Partner Communications | Home Depot vs. Merck Company | Home Depot vs. Western Midstream Partners | Home Depot vs. Edgewise Therapeutics |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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