Correlation Between Walmart and Valero Energy

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

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

Diversification Opportunities for Walmart and Valero Energy

0.61

Correlation Coefficient

Walmart  Valero Energy

Poor diversification

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

Pair Corralation between Walmart and Valero Energy

Assuming the 90 days trading horizon Walmart is expected to generate 0.6 times more return on investment than Valero Energy. However, Walmart is 1.67 times less risky than Valero Energy. It trades about 0.12 of its potential returns per unit of risk. Valero Energy is currently generating about 0.02 per unit of risk. If you would invest  90,133  in Walmart on September 24, 2024 and sell it today you would earn a total of  94,867  from holding Walmart or generate 105.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Walmart  vs.  Valero Energy

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.

Valero Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valero Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Valero Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walmart and Valero Energy

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

The idea behind Walmart and Valero Energy 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.