Correlation Between Walmart and Leons Furniture

Can any of the company-specific risk be diversified away by investing in both Walmart and Leons Furniture 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 Leons Furniture 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 Leons Furniture Limited, you can compare the effects of market volatilities on Walmart and Leons Furniture 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 Leons Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Leons Furniture.

Diversification Opportunities for Walmart and Leons Furniture

0.54

Correlation Coefficient

Walmart  Leons Furniture

Very weak diversification

The 3 months correlation between Walmart and Leons is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Walmart Inc CDR and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture 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 Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of Walmart i.e., Walmart and Leons Furniture go up and down completely randomly.

Pair Corralation between Walmart and Leons Furniture

Assuming the 90 days trading horizon Walmart Inc CDR is expected to generate 1.11 times more return on investment than Leons Furniture. However, Walmart is 1.11 times more volatile than Leons Furniture Limited. It trades about -0.05 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.06 per unit of risk. If you would invest  3,969  in Walmart Inc CDR on December 27, 2024 and sell it today you would lose (271.00) from holding Walmart Inc CDR or give up 6.83% of portfolio value over 90 days.

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

Walmart Inc CDR  vs.  Leons Furniture Limited

Walmart Inc CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart Inc CDR has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Leons Furniture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Leons Furniture is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Walmart and Leons Furniture

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

The idea behind Walmart Inc CDR and Leons Furniture Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.