Correlation Between MetLife and Home Depot

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

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

Diversification Opportunities for MetLife and Home Depot

0.45

Correlation Coefficient

MetLife  Home Depot

Very weak diversification

The 3 months correlation between MetLife and Home is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding MetLife and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and MetLife 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 MetLife 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 MetLife i.e., MetLife and Home Depot go up and down completely randomly.

Pair Corralation between MetLife and Home Depot

Considering the 90-day investment horizon MetLife is expected to generate 0.94 times more return on investment than Home Depot. However, MetLife is 1.07 times less risky than Home Depot. It trades about 0.05 of its potential returns per unit of risk. Home Depot is currently generating about -0.07 per unit of risk. If you would invest  6,895  in MetLife on January 21, 2024 and sell it today you would earn a total of  216.00  from holding MetLife or generate 3.13% return on investment over 90 days.

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

MetLife  vs.  Home Depot

MetLife

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, MetLife is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Home Depot

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MetLife and Home Depot

The main advantage of trading using opposite MetLife and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MetLife 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 MetLife 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..