Correlation Between Walmart and United Parcel

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

By analyzing existing cross correlation between Walmart and United Parcel Service, you can compare the effects of market volatilities on Walmart and United Parcel 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 United Parcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and United Parcel.

Diversification Opportunities for Walmart and United Parcel

-0.51

Correlation Coefficient

Walmart  United Parcel

Excellent diversification

The 3 months correlation between Walmart and United is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Walmart i.e., Walmart and United Parcel go up and down completely randomly.

Pair Corralation between Walmart and United Parcel

Assuming the 90 days trading horizon Walmart is expected to generate 0.05 times more return on investment than United Parcel. However, Walmart is 18.99 times less risky than United Parcel. It trades about 0.21 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.26 per unit of risk. If you would invest  5,939  in Walmart on September 23, 2024 and sell it today you would earn a total of  21.00  from holding Walmart or generate 0.35% return on investment over 90 days.

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

Walmart  vs.  United Parcel Service

Walmart

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 9 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

United Parcel Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, United Parcel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Walmart and United Parcel

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

The idea behind Walmart and United Parcel Service 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.