Correlation Between LPL Financial and Home Depot

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

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

Diversification Opportunities for LPL Financial and Home Depot

0.4

Correlation Coefficient

LPL Financial  Home Depot

Very weak diversification

The 3 months correlation between LPL and Home is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding LPL Financial Holdings and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and LPL Financial 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 LPL Financial Holdings are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of LPL Financial i.e., LPL Financial and Home Depot go up and down completely randomly.

Pair Corralation between LPL Financial and Home Depot

Assuming the 90 days trading horizon LPL Financial Holdings is expected to generate 0.86 times more return on investment than Home Depot. However, LPL Financial Holdings is 1.17 times less risky than Home Depot. It trades about -0.06 of its potential returns per unit of risk. The Home Depot is currently generating about -0.09 per unit of risk. If you would invest  11,307  in LPL Financial Holdings on December 21, 2024 and sell it today you would lose (845.00) from holding LPL Financial Holdings or give up 7.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.55%
Values	Daily Returns

LPL Financial Holdings  vs.  The Home Depot

LPL Financial Holdings

Risk-Adjusted Performance

Very Weak

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

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 weak performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LPL Financial and Home Depot

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

The idea behind LPL Financial Holdings and The Home Depot 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.