Correlation Between American International and Walmart

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

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

Diversification Opportunities for American International and Walmart

0.69

Correlation Coefficient

American International  Walmart

Poor diversification

The 3 months correlation between American and Walmart is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding American International Group and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and American International 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 American International Group 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 American International i.e., American International and Walmart go up and down completely randomly.

Pair Corralation between American International and Walmart

Assuming the 90 days trading horizon American International Group is expected to generate 1.41 times more return on investment than Walmart. However, American International is 1.41 times more volatile than Walmart. It trades about 0.15 of its potential returns per unit of risk. Walmart is currently generating about 0.05 per unit of risk. If you would invest  143,332  in American International Group on September 23, 2024 and sell it today you would earn a total of  8,018  from holding American International Group or generate 5.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

American International Group  vs.  Walmart

American International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, American International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Walmart

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American International and Walmart

The main advantage of trading using opposite American International and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American International 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 American International Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.