Correlation Between Walmart and Compania

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

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

Diversification Opportunities for Walmart and Compania

0.73

Correlation Coefficient

Walmart  Compania

Poor diversification

The 3 months correlation between Walmart and Compania is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Compania de Transporte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Transporte 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 Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Transporte has no effect on the direction of Walmart i.e., Walmart and Compania go up and down completely randomly.

Pair Corralation between Walmart and Compania

Assuming the 90 days trading horizon Walmart is expected to generate 3.28 times less return on investment than Compania. But when comparing it to its historical volatility, Walmart is 3.03 times less risky than Compania. It trades about 0.14 of its potential returns per unit of risk. Compania de Transporte is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  189,000  in Compania de Transporte on October 24, 2024 and sell it today you would earn a total of  76,000  from holding Compania de Transporte or generate 40.21% return on investment over 90 days.

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

Walmart  vs.  Compania de Transporte

Walmart

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Compania de Transporte

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Transporte are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compania sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Compania

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

The idea behind Walmart and Compania de Transporte 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.