Correlation Between BM European and Wal Mart

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

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

Diversification Opportunities for BM European and Wal Mart

0.04

Correlation Coefficient

BM European  Wal Mart

Significant diversification

The 3 months correlation between BMRPF and Wal is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BM European Value 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 BM European 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 BM European Value 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 BM European i.e., BM European and Wal Mart go up and down completely randomly.

Pair Corralation between BM European and Wal Mart

Assuming the 90 days horizon BM European is expected to generate 3.64 times less return on investment than Wal Mart. In addition to that, BM European is 1.3 times more volatile than Wal Mart de. It trades about 0.01 of its total potential returns per unit of risk. Wal Mart de is currently generating about 0.03 per unit of volatility. If you would invest  228.00  in Wal Mart de on November 20, 2024 and sell it today you would earn a total of  53.00  from holding Wal Mart de or generate 23.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.76%
Values	Daily Returns

BM European Value  vs.  Wal Mart de

BM European Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days BM European Value has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BM European is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Wal Mart de

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart de are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wal Mart may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with BM European and Wal Mart

The main advantage of trading using opposite BM European and Wal Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BM European 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 BM European Value 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..