Correlation Between Alliance Data and Walmart

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

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

Diversification Opportunities for Alliance Data and Walmart

0.52

Correlation Coefficient

Alliance Data  Walmart

Very weak diversification

The 3 months correlation between Alliance and Walmart is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Alliance Data 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 Alliance Data Systems are associated (or correlated) with Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Alliance Data i.e., Alliance Data and Walmart go up and down completely randomly.

Pair Corralation between Alliance Data and Walmart

Assuming the 90 days trading horizon Alliance Data is expected to generate 1.64 times less return on investment than Walmart. But when comparing it to its historical volatility, Alliance Data Systems is 4.3 times less risky than Walmart. It trades about 0.12 of its potential returns per unit of risk. Walmart is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,402  in Walmart on October 9, 2024 and sell it today you would earn a total of  1,558  from holding Walmart or generate 35.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.76%
Values	Daily Returns

Alliance Data Systems  vs.  Walmart

Alliance Data Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Walmart

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alliance Data and Walmart

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

The idea behind Alliance Data Systems and Walmart 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.