Correlation Between Walmart and Alaska Air

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

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

Diversification Opportunities for Walmart and Alaska Air

0.76

Correlation Coefficient

Walmart  Alaska Air

Poor diversification

The 3 months correlation between Walmart and Alaska is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Walmart 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 Walmart are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Walmart i.e., Walmart and Alaska Air go up and down completely randomly.

Pair Corralation between Walmart and Alaska Air

Assuming the 90 days trading horizon Walmart is expected to generate 6.26 times more return on investment than Alaska Air. However, Walmart is 6.26 times more volatile than Alaska Air Group. It trades about 0.03 of its potential returns per unit of risk. Alaska Air Group is currently generating about 0.04 per unit of risk. If you would invest  13,393  in Walmart on October 10, 2024 and sell it today you would lose (7,433) from holding Walmart or give up 55.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.75%
Values	Daily Returns

Walmart  vs.  Alaska Air Group

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.

Alaska Air Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Alaska Air

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

The idea behind Walmart and Alaska Air Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.