Correlation Between Volkswagen and Walmart

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

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

Diversification Opportunities for Volkswagen and Walmart

-0.72

Correlation Coefficient

Volkswagen  Walmart

Pay attention - limited upside

The 3 months correlation between Volkswagen and Walmart is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Volkswagen 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 Volkswagen AG 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 Volkswagen i.e., Volkswagen and Walmart go up and down completely randomly.

Pair Corralation between Volkswagen and Walmart

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Walmart. In addition to that, Volkswagen is 1.4 times more volatile than Walmart. It trades about -0.06 of its total potential returns per unit of risk. Walmart is currently generating about 0.14 per unit of volatility. If you would invest  4,240  in Walmart on October 5, 2024 and sell it today you would earn a total of  4,511  from holding Walmart or generate 106.39% return on investment over 90 days.

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

Volkswagen AG  vs.  Walmart

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Walmart

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Walmart reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Walmart

The main advantage of trading using opposite Volkswagen and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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 Volkswagen AG 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.