Correlation Between Norwegian Air and Walmart

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

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

Diversification Opportunities for Norwegian Air and Walmart

-0.27

Correlation Coefficient

Norwegian Air  Walmart

Very good diversification

The 3 months correlation between Norwegian and Walmart is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Norwegian Air 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 Norwegian Air Shuttle 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 Norwegian Air i.e., Norwegian Air and Walmart go up and down completely randomly.

Pair Corralation between Norwegian Air and Walmart

Assuming the 90 days horizon Norwegian Air is expected to generate 4.88 times less return on investment than Walmart. In addition to that, Norwegian Air is 2.84 times more volatile than Walmart. It trades about 0.02 of its total potential returns per unit of risk. Walmart is currently generating about 0.3 per unit of volatility. If you would invest  7,194  in Walmart on September 15, 2024 and sell it today you would earn a total of  1,825  from holding Walmart or generate 25.37% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  Walmart

Norwegian Air Shuttle

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Norwegian Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. In spite of comparatively fragile basic indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norwegian Air and Walmart

The main advantage of trading using opposite Norwegian Air and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Air 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 Norwegian Air Shuttle 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.