Correlation Between International Business and Walmart

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

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

Diversification Opportunities for International Business and Walmart

0.36

Correlation Coefficient

International Business  Walmart

Weak diversification

The 3 months correlation between International and Walmart is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and International Business 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 International Business Machines 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 International Business i.e., International Business and Walmart go up and down completely randomly.

Pair Corralation between International Business and Walmart

Considering the 90-day investment horizon International Business Machines is expected to under-perform the Walmart. In addition to that, International Business is 1.37 times more volatile than Walmart. It trades about -0.01 of its total potential returns per unit of risk. Walmart is currently generating about 0.16 per unit of volatility. If you would invest  8,076  in Walmart on October 4, 2024 and sell it today you would earn a total of  924.00  from holding Walmart or generate 11.44% return on investment over 90 days.

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

International Business Machine  vs.  Walmart

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Walmart

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with International Business and Walmart

The main advantage of trading using opposite International Business and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.