Correlation Between Meta Platforms and Walmart

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

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

Diversification Opportunities for Meta Platforms and Walmart

0.91

Correlation Coefficient

Meta Platforms  Walmart

Almost no diversification

The 3 months correlation between Meta and Walmart is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms CDR and Walmart Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart Inc CDR and Meta Platforms 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 Meta Platforms CDR 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 Inc CDR has no effect on the direction of Meta Platforms i.e., Meta Platforms and Walmart go up and down completely randomly.

Pair Corralation between Meta Platforms and Walmart

Assuming the 90 days trading horizon Meta Platforms CDR is expected to generate 1.08 times more return on investment than Walmart. However, Meta Platforms is 1.08 times more volatile than Walmart Inc CDR. It trades about -0.01 of its potential returns per unit of risk. Walmart Inc CDR is currently generating about -0.04 per unit of risk. If you would invest  3,280  in Meta Platforms CDR on December 30, 2024 and sell it today you would lose (101.00) from holding Meta Platforms CDR or give up 3.08% of portfolio value over 90 days.

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

Meta Platforms CDR  vs.  Walmart Inc CDR

Meta Platforms CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meta Platforms CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Meta Platforms is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Walmart Inc CDR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Meta Platforms and Walmart

The main advantage of trading using opposite Meta Platforms and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms CDR and Walmart Inc CDR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.