Correlation Between Lumen Technologies and Home Depot

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

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

Diversification Opportunities for Lumen Technologies and Home Depot

0.51

Correlation Coefficient

Lumen Technologies  Home Depot

Very weak diversification

The 3 months correlation between Lumen and Home is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Lumen Technologies 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 Lumen Technologies 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 Lumen Technologies i.e., Lumen Technologies and Home Depot go up and down completely randomly.

Pair Corralation between Lumen Technologies and Home Depot

Given the investment horizon of 90 days Lumen Technologies is expected to generate 4.25 times more return on investment than Home Depot. However, Lumen Technologies is 4.25 times more volatile than Home Depot. It trades about 0.16 of its potential returns per unit of risk. Home Depot is currently generating about 0.23 per unit of risk. If you would invest  471.00  in Lumen Technologies on September 2, 2024 and sell it today you would earn a total of  263.00  from holding Lumen Technologies or generate 55.84% return on investment over 90 days.

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

Lumen Technologies  vs.  Home Depot

Lumen Technologies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lumen Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Lumen Technologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 18 (%) 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.

Pair Trading with Lumen Technologies and Home Depot

The main advantage of trading using opposite Lumen Technologies and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumen Technologies 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 Lumen Technologies and 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.