Correlation Between Walmart and NEXTDC

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

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

Diversification Opportunities for Walmart and NEXTDC

-0.61

Correlation Coefficient

Walmart  NEXTDC

Excellent diversification

The 3 months correlation between Walmart and NEXTDC is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Walmart i.e., Walmart and NEXTDC go up and down completely randomly.

Pair Corralation between Walmart and NEXTDC

Assuming the 90 days horizon Walmart is expected to generate 0.52 times more return on investment than NEXTDC. However, Walmart is 1.94 times less risky than NEXTDC. It trades about 0.33 of its potential returns per unit of risk. NEXTDC LTD is currently generating about -0.07 per unit of risk. If you would invest  7,069  in Walmart on September 18, 2024 and sell it today you would earn a total of  1,930  from holding Walmart or generate 27.3% return on investment over 90 days.

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

Walmart  vs.  NEXTDC LTD

Walmart

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Walmart reported solid returns over the last few months and may actually be approaching a breakup point.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Walmart and NEXTDC

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

The idea behind Walmart and NEXTDC LTD 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.