Correlation Between Home Depot and Monro Muffler

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

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

Diversification Opportunities for Home Depot and Monro Muffler

0.64

Correlation Coefficient

Home Depot  Monro Muffler

Poor diversification

The 3 months correlation between Home and Monro is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Monro Muffler Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monro Muffler Brake 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 Monro Muffler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monro Muffler Brake has no effect on the direction of Home Depot i.e., Home Depot and Monro Muffler go up and down completely randomly.

Pair Corralation between Home Depot and Monro Muffler

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.65 times more return on investment than Monro Muffler. However, Home Depot is 1.55 times less risky than Monro Muffler. It trades about 0.26 of its potential returns per unit of risk. Monro Muffler Brake is currently generating about 0.11 per unit of risk. If you would invest  39,300  in Home Depot on August 30, 2024 and sell it today you would earn a total of  3,419  from holding Home Depot or generate 8.7% 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.  Monro Muffler Brake

Home Depot

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Home Depot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Monro Muffler Brake

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monro Muffler Brake are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Monro Muffler is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Monro Muffler

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

The idea behind Home Depot and Monro Muffler Brake 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.