Correlation Between Walmart and Manufatura

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

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

Diversification Opportunities for Walmart and Manufatura

-0.51

Correlation Coefficient

Walmart  Manufatura

Excellent diversification

The 3 months correlation between Walmart and Manufatura is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Manufatura de Brinquedos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manufatura de Brinquedos and Walmart 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 Walmart are associated (or correlated) with Manufatura. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manufatura de Brinquedos has no effect on the direction of Walmart i.e., Walmart and Manufatura go up and down completely randomly.

Pair Corralation between Walmart and Manufatura

Assuming the 90 days trading horizon Walmart is expected to generate 4.13 times less return on investment than Manufatura. But when comparing it to its historical volatility, Walmart is 4.53 times less risky than Manufatura. It trades about 0.05 of its potential returns per unit of risk. Manufatura de Brinquedos is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  400.00  in Manufatura de Brinquedos on September 23, 2024 and sell it today you would lose (44.00) from holding Manufatura de Brinquedos or give up 11.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

Walmart  vs.  Manufatura de Brinquedos

Walmart

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Walmart sustained solid returns over the last few months and may actually be approaching a breakup point.

Manufatura de Brinquedos

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Walmart and Manufatura

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

The idea behind Walmart and Manufatura de Brinquedos 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.