Correlation Between Home Depot and Cummins

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

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

Diversification Opportunities for Home Depot and Cummins

0.0

Correlation Coefficient

Home Depot  Cummins

Pay attention - limited upside

The 3 months correlation between Home and Cummins is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins 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 The Home Depot are associated (or correlated) with Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of Home Depot i.e., Home Depot and Cummins go up and down completely randomly.

Pair Corralation between Home Depot and Cummins

If you would invest  8,130  in The Home Depot on October 25, 2024 and sell it today you would earn a total of  586.00  from holding The Home Depot or generate 7.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.72%
Values	Daily Returns

The Home Depot  vs.  Cummins

Home Depot

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cummins

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Cummins has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Cummins is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Depot and Cummins

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

The idea behind The Home Depot and Cummins 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.