Correlation Between Estee Lauder and Walmart

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

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

Diversification Opportunities for Estee Lauder and Walmart

0.17

Correlation Coefficient

Estee Lauder  Walmart

Average diversification

The 3 months correlation between Estee and Walmart is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and Walmart go up and down completely randomly.

Pair Corralation between Estee Lauder and Walmart

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Walmart. In addition to that, Estee Lauder is 1.8 times more volatile than Walmart. It trades about -0.03 of its total potential returns per unit of risk. Walmart is currently generating about -0.04 per unit of volatility. If you would invest  9,032  in Walmart on December 28, 2024 and sell it today you would lose (469.00) from holding Walmart or give up 5.19% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  Walmart

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Estee Lauder and Walmart

The main advantage of trading using opposite Estee Lauder and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.