Correlation Between Home Depot and Lowes Companies
Can any of the company-specific risk be diversified away by investing in both Home Depot and Lowes Companies 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 Home Depot and Lowes Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Lowes Companies, you can compare the effects of market volatilities on Home Depot and Lowes Companies 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 Home Depot with a short position of Lowes Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Lowes Companies.
Diversification Opportunities for Home Depot and Lowes Companies
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Lowes is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies and Home Depot 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 Home Depot are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Home Depot i.e., Home Depot and Lowes Companies go up and down completely randomly.
Pair Corralation between Home Depot and Lowes Companies
Allowing for the 90-day total investment horizon Home Depot is expected to under-perform the Lowes Companies. But the stock apears to be less risky and, when comparing its historical volatility, Home Depot is 1.1 times less risky than Lowes Companies. The stock trades about -0.07 of its potential returns per unit of risk. The Lowes Companies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 21,097 in Lowes Companies on January 26, 2024 and sell it today you would earn a total of 1,932 from holding Lowes Companies or generate 9.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Lowes Companies
Performance |
| Timeline |
| Home Depot |
| Lowes Companies |
Home Depot and Lowes Companies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Lowes Companies
The main advantage of trading using opposite Home Depot and Lowes Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Lowes Companies 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 Lowes Companies will offset losses from the drop in Lowes Companies' long position.| Home Depot vs. Floor Decor Holdings | Home Depot vs. LL Flooring Holdings | Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies |
| Lowes Companies vs. Floor Decor Holdings | Lowes Companies vs. LL Flooring Holdings | Lowes Companies vs. Arhaus Inc | Lowes Companies vs. Haverty Furniture 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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