Correlation Between Tesco PLC and Wal Mart

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

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

Diversification Opportunities for Tesco PLC and Wal Mart

-0.26

Correlation Coefficient

Tesco PLC  Wal Mart

Very good diversification

The 3 months correlation between Tesco and Wal is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC 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 Tesco PLC 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 Tesco PLC 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 Tesco PLC i.e., Tesco PLC and Wal Mart go up and down completely randomly.

Pair Corralation between Tesco PLC and Wal Mart

Assuming the 90 days horizon Tesco PLC is expected to under-perform the Wal Mart. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tesco PLC is 1.16 times less risky than Wal Mart. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Wal Mart de is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,626  in Wal Mart de on December 28, 2024 and sell it today you would earn a total of  232.00  from holding Wal Mart de or generate 8.83% return on investment over 90 days.

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

Tesco PLC  vs.  Wal Mart de

Tesco PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tesco PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Wal Mart de

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart de are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Wal Mart may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tesco PLC and Wal Mart

The main advantage of trading using opposite Tesco PLC and Wal Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesco PLC 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 Tesco PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.