Correlation Between Walmart and Dorel Industries

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

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

Diversification Opportunities for Walmart and Dorel Industries

0.29

Correlation Coefficient

Walmart  Dorel Industries

Modest diversification

The 3 months correlation between Walmart and Dorel is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Walmart Inc CDR and Dorel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorel Industries 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 Inc CDR are associated (or correlated) with Dorel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorel Industries has no effect on the direction of Walmart i.e., Walmart and Dorel Industries go up and down completely randomly.

Pair Corralation between Walmart and Dorel Industries

Assuming the 90 days trading horizon Walmart Inc CDR is expected to generate 0.33 times more return on investment than Dorel Industries. However, Walmart Inc CDR is 3.02 times less risky than Dorel Industries. It trades about 0.04 of its potential returns per unit of risk. Dorel Industries is currently generating about -0.01 per unit of risk. If you would invest  4,028  in Walmart Inc CDR on November 29, 2024 and sell it today you would earn a total of  129.00  from holding Walmart Inc CDR or generate 3.2% return on investment over 90 days.

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

Walmart Inc CDR  vs.  Dorel Industries

Walmart Inc CDR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart Inc CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Walmart is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Dorel Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dorel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Dorel Industries is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Walmart and Dorel Industries

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

The idea behind Walmart Inc CDR and Dorel Industries 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.