Correlation Between BJs Wholesale and Walmart

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

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

Diversification Opportunities for BJs Wholesale and Walmart

-0.04

Correlation Coefficient

BJs Wholesale  Walmart

Good diversification

The 3 months correlation between BJs and Walmart is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and BJs Wholesale 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 BJs Wholesale Club 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 BJs Wholesale i.e., BJs Wholesale and Walmart go up and down completely randomly.

Pair Corralation between BJs Wholesale and Walmart

Assuming the 90 days horizon BJs Wholesale Club is expected to generate 1.4 times more return on investment than Walmart. However, BJs Wholesale is 1.4 times more volatile than Walmart. It trades about 0.11 of its potential returns per unit of risk. Walmart is currently generating about -0.09 per unit of risk. If you would invest  8,800  in BJs Wholesale Club on December 30, 2024 and sell it today you would earn a total of  1,400  from holding BJs Wholesale Club or generate 15.91% return on investment over 90 days.

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

BJs Wholesale Club  vs.  Walmart

BJs Wholesale Club

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BJs Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with BJs Wholesale and Walmart

The main advantage of trading using opposite BJs Wholesale and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Wholesale 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 BJs Wholesale Club 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.