Correlation Between Wal-Mart and Svenska Cellulosa

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

By analyzing existing cross correlation between Wal Mart de Mxico and Svenska Cellulosa Aktiebolaget, you can compare the effects of market volatilities on Wal-Mart and Svenska Cellulosa 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 Wal-Mart with a short position of Svenska Cellulosa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wal-Mart and Svenska Cellulosa.

Diversification Opportunities for Wal-Mart and Svenska Cellulosa

-0.53

Correlation Coefficient

Wal-Mart  Svenska Cellulosa

Excellent diversification

The 3 months correlation between Wal-Mart and Svenska is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Wal Mart de Mxico and Svenska Cellulosa Aktiebolaget in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Cellulosa and Wal-Mart 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 Wal Mart de Mxico are associated (or correlated) with Svenska Cellulosa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Cellulosa has no effect on the direction of Wal-Mart i.e., Wal-Mart and Svenska Cellulosa go up and down completely randomly.

Pair Corralation between Wal-Mart and Svenska Cellulosa

Assuming the 90 days trading horizon Wal Mart de Mxico is expected to generate 3.51 times more return on investment than Svenska Cellulosa. However, Wal-Mart is 3.51 times more volatile than Svenska Cellulosa Aktiebolaget. It trades about 0.09 of its potential returns per unit of risk. Svenska Cellulosa Aktiebolaget is currently generating about 0.03 per unit of risk. If you would invest  78.00  in Wal Mart de Mxico on September 24, 2024 and sell it today you would earn a total of  206.00  from holding Wal Mart de Mxico or generate 264.1% return on investment over 90 days.

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

Wal Mart de Mxico  vs.  Svenska Cellulosa Aktiebolaget

Wal Mart de

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart de Mxico are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wal-Mart reported solid returns over the last few months and may actually be approaching a breakup point.

Svenska Cellulosa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Cellulosa Aktiebolaget has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Wal-Mart and Svenska Cellulosa

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

The idea behind Wal Mart de Mxico and Svenska Cellulosa Aktiebolaget 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 Transaction History module to view history of all your transactions and understand their impact on performance.