Correlation Between MetLife and Walmart

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

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

Diversification Opportunities for MetLife and Walmart

0.86

Correlation Coefficient

MetLife  Walmart

Very poor diversification

The 3 months correlation between MetLife and Walmart is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding MetLife and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and MetLife 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 MetLife 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 MetLife i.e., MetLife and Walmart go up and down completely randomly.

Pair Corralation between MetLife and Walmart

Assuming the 90 days trading horizon MetLife is expected to under-perform the Walmart. But the stock apears to be less risky and, when comparing its historical volatility, MetLife is 1.16 times less risky than Walmart. The stock trades about -0.05 of its potential returns per unit of risk. The Walmart is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,325  in Walmart on September 27, 2024 and sell it today you would earn a total of  181.00  from holding Walmart or generate 5.44% return on investment over 90 days.

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

MetLife  vs.  Walmart

MetLife

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetLife sustained solid returns over the last few months and may actually be approaching a breakup point.

Walmart

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Walmart sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MetLife and Walmart

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