Correlation Between Walmart and Digital China

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

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

Diversification Opportunities for Walmart and Digital China

0.85

Correlation Coefficient

Walmart  Digital China

Very poor diversification

The 3 months correlation between Walmart and Digital is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Digital China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Holdings 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 Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Holdings has no effect on the direction of Walmart i.e., Walmart and Digital China go up and down completely randomly.

Pair Corralation between Walmart and Digital China

Assuming the 90 days horizon Walmart is expected to generate 1.36 times less return on investment than Digital China. But when comparing it to its historical volatility, Walmart is 2.82 times less risky than Digital China. It trades about 0.2 of its potential returns per unit of risk. Digital China Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Digital China Holdings on October 24, 2024 and sell it today you would earn a total of  6.00  from holding Digital China Holdings or generate 18.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Walmart  vs.  Digital China Holdings

Walmart

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 16 (%) 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.

Digital China Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Digital China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Digital China

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

The idea behind Walmart and Digital China Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.