Correlation Between Montea Comm and Home Depot

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

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

Diversification Opportunities for Montea Comm and Home Depot

-0.4

Correlation Coefficient

Montea Comm  Home Depot

Very good diversification

The 3 months correlation between Montea and Home is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Montea Comm VA and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Montea Comm 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 Montea Comm VA 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 Montea Comm i.e., Montea Comm and Home Depot go up and down completely randomly.

Pair Corralation between Montea Comm and Home Depot

Assuming the 90 days horizon Montea Comm VA is expected to under-perform the Home Depot. But the stock apears to be less risky and, when comparing its historical volatility, Montea Comm VA is 1.03 times less risky than Home Depot. The stock trades about -0.07 of its potential returns per unit of risk. The The Home Depot is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  37,496  in The Home Depot on October 9, 2024 and sell it today you would earn a total of  224.00  from holding The Home Depot or generate 0.6% return on investment over 90 days.

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

Montea Comm VA  vs.  The Home Depot

Montea Comm VA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montea Comm VA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Home Depot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Home Depot is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Montea Comm and Home Depot

The main advantage of trading using opposite Montea Comm and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Montea Comm 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 Montea Comm VA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.