Correlation Between Home Depot and Markel Corp

Can any of the company-specific risk be diversified away by investing in both Home Depot and Markel Corp 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 Markel Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Home Depot and Markel Corp, you can compare the effects of market volatilities on Home Depot and Markel Corp 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 Markel Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Markel Corp.

Diversification Opportunities for Home Depot and Markel Corp

0.67

Correlation Coefficient

Home Depot  Markel Corp

Poor diversification

The 3 months correlation between Home and Markel is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Markel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Markel Corp 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 Markel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Markel Corp has no effect on the direction of Home Depot i.e., Home Depot and Markel Corp go up and down completely randomly.

Pair Corralation between Home Depot and Markel Corp

Assuming the 90 days trading horizon Home Depot is expected to generate 2.4 times less return on investment than Markel Corp. But when comparing it to its historical volatility, Home Depot is 1.53 times less risky than Markel Corp. It trades about 0.03 of its potential returns per unit of risk. Markel Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  139,800  in Markel Corp on October 22, 2024 and sell it today you would earn a total of  37,681  from holding Markel Corp or generate 26.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.6%
Values	Daily Returns

Home Depot  vs.  Markel Corp

Home Depot

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Home Depot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Markel Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Markel Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Markel Corp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Home Depot and Markel Corp

The main advantage of trading using opposite Home Depot and Markel Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot position performs unexpectedly, Markel Corp 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 Markel Corp will offset losses from the drop in Markel Corp's long position.

The idea behind Home Depot and Markel Corp 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..