Correlation Between Walmart and Alibaba Group

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

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

Diversification Opportunities for Walmart and Alibaba Group

-0.42

Correlation Coefficient

Walmart  Alibaba Group

Very good diversification

The 3 months correlation between Walmart and Alibaba is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding 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 Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Walmart i.e., Walmart and Alibaba Group go up and down completely randomly.

Pair Corralation between Walmart and Alibaba Group

Assuming the 90 days trading horizon Walmart is expected to generate 0.42 times more return on investment than Alibaba Group. However, Walmart is 2.38 times less risky than Alibaba Group. It trades about 0.02 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.04 per unit of risk. If you would invest  561,000  in Walmart on September 13, 2024 and sell it today you would earn a total of  6,000  from holding Walmart or generate 1.07% return on investment over 90 days.

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

Walmart  vs.  Alibaba Group Holding

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.

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Walmart and Alibaba Group

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

The idea behind Walmart and Alibaba Group Holding 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.