Correlation Between LOWES and Home Depot

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

By analyzing existing cross correlation between LOWES INC 3375 and Home Depot, you can compare the effects of market volatilities on LOWES 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 LOWES with a short position of Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOWES and Home Depot.

Diversification Opportunities for LOWES and Home Depot

-0.15

Correlation Coefficient

LOWES  Home Depot

Good diversification

The 3 months correlation between LOWES and Home is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding LOWES INC 3375 and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and LOWES 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 LOWES INC 3375 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 LOWES i.e., LOWES and Home Depot go up and down completely randomly.

Pair Corralation between LOWES and Home Depot

Assuming the 90 days trading horizon LOWES INC 3375 is expected to generate 0.12 times more return on investment than Home Depot. However, LOWES INC 3375 is 8.2 times less risky than Home Depot. It trades about 0.02 of its potential returns per unit of risk. Home Depot is currently generating about -0.08 per unit of risk. If you would invest  9,897  in LOWES INC 3375 on December 2, 2024 and sell it today you would earn a total of  14.00  from holding LOWES INC 3375 or generate 0.14% return on investment over 90 days.

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

LOWES INC 3375  vs.  Home Depot

LOWES INC 3375

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LOWES INC 3375 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LOWES is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Home Depot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with LOWES and Home Depot

The main advantage of trading using opposite LOWES and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOWES 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 LOWES INC 3375 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.