Correlation Between PriceSmart and Wal Mart

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

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

Diversification Opportunities for PriceSmart and Wal Mart

0.23

Correlation Coefficient

PriceSmart  Wal Mart

Modest diversification

The 3 months correlation between PriceSmart and Wal is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding PriceSmart and Wal Mart de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de and PriceSmart 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 PriceSmart are associated (or correlated) with Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of PriceSmart i.e., PriceSmart and Wal Mart go up and down completely randomly.

Pair Corralation between PriceSmart and Wal Mart

Given the investment horizon of 90 days PriceSmart is expected to under-perform the Wal Mart. But the stock apears to be less risky and, when comparing its historical volatility, PriceSmart is 1.49 times less risky than Wal Mart. The stock trades about -0.04 of its potential returns per unit of risk. The Wal Mart de is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  262.00  in Wal Mart de on December 29, 2024 and sell it today you would earn a total of  21.00  from holding Wal Mart de or generate 8.02% return on investment over 90 days.

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

PriceSmart  vs.  Wal Mart de

PriceSmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days PriceSmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, PriceSmart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Wal Mart de

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart de are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wal Mart may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PriceSmart and Wal Mart

The main advantage of trading using opposite PriceSmart and Wal Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PriceSmart position performs unexpectedly, Wal Mart 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 Wal Mart will offset losses from the drop in Wal Mart's long position.

The idea behind PriceSmart and Wal Mart de 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.