Correlation Between Walmart and IMPERIAL TOBACCO

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

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

Diversification Opportunities for Walmart and IMPERIAL TOBACCO

0.97

Correlation Coefficient

Walmart  IMPERIAL TOBACCO

Almost no diversification

The 3 months correlation between Walmart and IMPERIAL is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of Walmart i.e., Walmart and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between Walmart and IMPERIAL TOBACCO

Assuming the 90 days trading horizon Walmart is expected to generate 0.94 times more return on investment than IMPERIAL TOBACCO. However, Walmart is 1.07 times less risky than IMPERIAL TOBACCO. It trades about 0.33 of its potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.23 per unit of risk. If you would invest  7,168  in Walmart on September 12, 2024 and sell it today you would earn a total of  1,945  from holding Walmart or generate 27.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Walmart  vs.  IMPERIAL TOBACCO

Walmart

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

IMPERIAL TOBACCO

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and IMPERIAL TOBACCO

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

The idea behind Walmart and IMPERIAL TOBACCO 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.