Correlation Between Restaurant Brands and Walmart

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

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

Diversification Opportunities for Restaurant Brands and Walmart

0.14

Correlation Coefficient

Restaurant Brands  Walmart

Average diversification

The 3 months correlation between Restaurant and Walmart is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa 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 Restaurant Brands 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 Restaurant Brands International 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 Restaurant Brands i.e., Restaurant Brands and Walmart go up and down completely randomly.

Pair Corralation between Restaurant Brands and Walmart

Assuming the 90 days trading horizon Restaurant Brands is expected to generate 4.3 times less return on investment than Walmart. In addition to that, Restaurant Brands is 1.14 times more volatile than Walmart Inc CDR. It trades about 0.03 of its total potential returns per unit of risk. Walmart Inc CDR is currently generating about 0.13 per unit of volatility. If you would invest  2,077  in Walmart Inc CDR on September 26, 2024 and sell it today you would earn a total of  1,939  from holding Walmart Inc CDR or generate 93.36% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  Walmart Inc CDR

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

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

Walmart Inc CDR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart Inc CDR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Walmart displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Restaurant Brands and Walmart

The main advantage of trading using opposite Restaurant Brands and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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 Restaurant Brands International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.