Correlation Between Big Lots and Wal Mart

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

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

Diversification Opportunities for Big Lots and Wal Mart

0.8

Correlation Coefficient

Big Lots  Wal Mart

Very poor diversification

The 3 months correlation between Big and Wal is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and Wal Mart de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de and Big Lots 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 Big Lots are associated (or correlated) with Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Big Lots i.e., Big Lots and Wal Mart go up and down completely randomly.

Pair Corralation between Big Lots and Wal Mart

Considering the 90-day investment horizon Big Lots is expected to under-perform the Wal Mart. In addition to that, Big Lots is 10.2 times more volatile than Wal Mart de. It trades about -0.2 of its total potential returns per unit of risk. Wal Mart de is currently generating about -0.11 per unit of volatility. If you would invest  309.00  in Wal Mart de on August 31, 2024 and sell it today you would lose (54.00) from holding Wal Mart de or give up 17.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	23.81%
Values	Daily Returns

Big Lots  vs.  Wal Mart de

Big Lots

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. Despite sluggish performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Wal Mart de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wal Mart de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Big Lots and Wal Mart

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

The idea behind Big Lots and Wal Mart de 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.