Correlation Between Small Cap and WALMART

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

By analyzing existing cross correlation between Small Cap Premium and WALMART INC 62, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of WALMART. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and WALMART.

Diversification Opportunities for Small Cap and WALMART

-0.34

Correlation Coefficient

Small Cap  WALMART

Very good diversification

The 3 months correlation between Small and WALMART is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and WALMART INC 62 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WALMART INC 62 and Small Cap 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 Small Cap Premium 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 62 has no effect on the direction of Small Cap i.e., Small Cap and WALMART go up and down completely randomly.

Pair Corralation between Small Cap and WALMART

Considering the 90-day investment horizon Small Cap is expected to generate 2.09 times less return on investment than WALMART. But when comparing it to its historical volatility, Small Cap Premium is 2.09 times less risky than WALMART. It trades about 0.06 of its potential returns per unit of risk. WALMART INC 62 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,284  in WALMART INC 62 on October 25, 2024 and sell it today you would earn a total of  462.00  from holding WALMART INC 62 or generate 4.09% return on investment over 90 days.

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

Small Cap Premium  vs.  WALMART INC 62

Small Cap Premium

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

WALMART INC 62

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WALMART INC 62 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, WALMART is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and WALMART

The main advantage of trading using opposite Small Cap and WALMART positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Premium and WALMART INC 62 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.