Correlation Between Walmart and Meta Platforms

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

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

Diversification Opportunities for Walmart and Meta Platforms

0.93

Correlation Coefficient

Walmart  Meta Platforms

Almost no diversification

The 3 months correlation between Walmart and Meta is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Walmart i.e., Walmart and Meta Platforms go up and down completely randomly.

Pair Corralation between Walmart and Meta Platforms

Assuming the 90 days horizon Walmart is expected to under-perform the Meta Platforms. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.41 times less risky than Meta Platforms. The stock trades about -0.09 of its potential returns per unit of risk. The Meta Platforms is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  56,810  in Meta Platforms on December 30, 2024 and sell it today you would lose (2,950) from holding Meta Platforms or give up 5.19% of portfolio value over 90 days.

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

Walmart  vs.  Meta Platforms

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart 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.

Meta Platforms

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Meta Platforms is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Walmart and Meta Platforms

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

The idea behind Walmart and Meta Platforms 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.