Correlation Between Home Depot and Micron Technology

Can any of the company-specific risk be diversified away by investing in both Home Depot and Micron Technology 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 Micron Technology 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 Micron Technology, you can compare the effects of market volatilities on Home Depot and Micron Technology 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 Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Micron Technology.

Diversification Opportunities for Home Depot and Micron Technology

0.45

Correlation Coefficient

Home Depot  Micron Technology

Very weak diversification

The 3 months correlation between Home and Micron is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Home Depot i.e., Home Depot and Micron Technology go up and down completely randomly.

Pair Corralation between Home Depot and Micron Technology

Assuming the 90 days trading horizon The Home Depot is expected to under-perform the Micron Technology. But the stock apears to be less risky and, when comparing its historical volatility, The Home Depot is 2.59 times less risky than Micron Technology. The stock trades about -0.08 of its potential returns per unit of risk. The Micron Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  10,052  in Micron Technology on December 5, 2024 and sell it today you would lose (908.00) from holding Micron Technology or give up 9.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Home Depot  vs.  Micron Technology

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Micron Technology

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Home Depot and Micron Technology

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

The idea behind The Home Depot and Micron Technology 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..