Correlation Between Walmart and Reliance Steel

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

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

Diversification Opportunities for Walmart and Reliance Steel

0.89

Correlation Coefficient

Walmart  Reliance Steel

Very poor diversification

The 3 months correlation between Walmart and Reliance is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum 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 Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of Walmart i.e., Walmart and Reliance Steel go up and down completely randomly.

Pair Corralation between Walmart and Reliance Steel

Assuming the 90 days horizon Walmart is expected to generate 0.58 times more return on investment than Reliance Steel. However, Walmart is 1.74 times less risky than Reliance Steel. It trades about 0.29 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.14 per unit of risk. If you would invest  7,257  in Walmart on September 13, 2024 and sell it today you would earn a total of  1,743  from holding Walmart or generate 24.02% return on investment over 90 days.

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

Walmart  vs.  Reliance Steel Aluminum

Walmart

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Walmart reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Reliance Steel

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

The idea behind Walmart and Reliance Steel Aluminum 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 Stocks Directory module to find actively traded stocks across global markets.