Correlation Between Walmart and Amazon

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

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

Diversification Opportunities for Walmart and Amazon

0.53

Correlation Coefficient

Walmart  Amazon

Very weak diversification

The 3 months correlation between Walmart and Amazon is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Walmart i.e., Walmart and Amazon go up and down completely randomly.

Pair Corralation between Walmart and Amazon

Assuming the 90 days trading horizon Walmart is expected to generate 3.37 times less return on investment than Amazon. But when comparing it to its historical volatility, Walmart is 1.37 times less risky than Amazon. It trades about 0.02 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  162,500  in Amazon Inc on September 13, 2024 and sell it today you would earn a total of  7,500  from holding Amazon Inc or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Walmart  vs.  Amazon Inc

Walmart

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 1 (%) 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.

Amazon Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Amazon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walmart and Amazon

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

The idea behind Walmart and Amazon Inc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.