Correlation Between Home Depot and PLMIW Old

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

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

Diversification Opportunities for Home Depot and PLMIW Old

-0.14

Correlation Coefficient

Home Depot  PLMIW Old

Good diversification

The 3 months correlation between Home and PLMIW is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and PLMIW Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PLMIW Old 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 PLMIW Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PLMIW Old has no effect on the direction of Home Depot i.e., Home Depot and PLMIW Old go up and down completely randomly.

Pair Corralation between Home Depot and PLMIW Old

Allowing for the 90-day total investment horizon Home Depot is expected to generate 305.42 times less return on investment than PLMIW Old. But when comparing it to its historical volatility, Home Depot is 89.83 times less risky than PLMIW Old. It trades about 0.04 of its potential returns per unit of risk. PLMIW Old is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4.00  in PLMIW Old on October 7, 2024 and sell it today you would earn a total of  21.00  from holding PLMIW Old or generate 525.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	62.5%
Values	Daily Returns

Home Depot  vs.  PLMIW Old

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PLMIW Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PLMIW Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, PLMIW Old is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Home Depot and PLMIW Old

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

The idea behind Home Depot and PLMIW Old 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.