Correlation Between Walmart and Synchrony Financial

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

By analyzing existing cross correlation between Walmart and Synchrony Financial, you can compare the effects of market volatilities on Walmart and Synchrony Financial 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 Synchrony Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Synchrony Financial.

Diversification Opportunities for Walmart and Synchrony Financial

0.95

Correlation Coefficient

Walmart  Synchrony Financial

Almost no diversification

The 3 months correlation between Walmart and Synchrony is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial 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 Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of Walmart i.e., Walmart and Synchrony Financial go up and down completely randomly.

Pair Corralation between Walmart and Synchrony Financial

Assuming the 90 days trading horizon Walmart is expected to generate 1.11 times less return on investment than Synchrony Financial. But when comparing it to its historical volatility, Walmart is 1.52 times less risky than Synchrony Financial. It trades about 0.22 of its potential returns per unit of risk. Synchrony Financial is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  18,832  in Synchrony Financial on October 7, 2024 and sell it today you would earn a total of  21,418  from holding Synchrony Financial or generate 113.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.12%
Values	Daily Returns

Walmart  vs.  Synchrony Financial

Walmart

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 23 (%) 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.

Synchrony Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Synchrony Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Synchrony Financial

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

The idea behind Walmart and Synchrony Financial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.