Correlation Between Walmart and Western Energy

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

Diversification Opportunities for Walmart and Western Energy

0.09

Correlation Coefficient

Walmart  Western Energy

Significant diversification

The 3 months correlation between Walmart and Western is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Walmart Inc CDR and Western Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Energy Services 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 Western Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Energy Services has no effect on the direction of Walmart i.e., Walmart and Western Energy go up and down completely randomly.

Pair Corralation between Walmart and Western Energy

Assuming the 90 days trading horizon Walmart Inc CDR is expected to generate 0.48 times more return on investment than Western Energy. However, Walmart Inc CDR is 2.09 times less risky than Western Energy. It trades about -0.04 of its potential returns per unit of risk. Western Energy Services is currently generating about -0.04 per unit of risk. If you would invest  3,914  in Walmart Inc CDR on December 23, 2024 and sell it today you would lose (207.00) from holding Walmart Inc CDR or give up 5.29% of portfolio value over 90 days.

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

Walmart Inc CDR  vs.  Western Energy Services

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 latest stock price disarray, may contribute to short-term losses for the investors.

Western Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Walmart and Western Energy

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

The idea behind Walmart Inc CDR and Western Energy Services 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.