Correlation Between Walmart and Masco

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

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

Diversification Opportunities for Walmart and Masco

0.89

Correlation Coefficient

Walmart  Masco

Very poor diversification

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

Pair Corralation between Walmart and Masco

Assuming the 90 days trading horizon Walmart is expected to generate 21.88 times more return on investment than Masco. However, Walmart is 21.88 times more volatile than Masco. It trades about 0.25 of its potential returns per unit of risk. Masco is currently generating about 0.13 per unit of risk. If you would invest  121,355  in Walmart on September 23, 2024 and sell it today you would earn a total of  63,645  from holding Walmart or generate 52.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Walmart  vs.  Masco

Walmart

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walmart and Masco

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

The idea behind Walmart and Masco 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.