Correlation Between Walmart and Alpha Lithium

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

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

Diversification Opportunities for Walmart and Alpha Lithium

-0.45

Correlation Coefficient

Walmart  Alpha Lithium

Very good diversification

The 3 months correlation between Walmart and Alpha is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Alpha Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Lithium 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 Alpha Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Lithium has no effect on the direction of Walmart i.e., Walmart and Alpha Lithium go up and down completely randomly.

Pair Corralation between Walmart and Alpha Lithium

Considering the 90-day investment horizon Walmart is expected to generate 1.69 times less return on investment than Alpha Lithium. But when comparing it to its historical volatility, Walmart is 9.26 times less risky than Alpha Lithium. It trades about 0.14 of its potential returns per unit of risk. Alpha Lithium is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Alpha Lithium on November 29, 2024 and sell it today you would lose (6.00) from holding Alpha Lithium or give up 35.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.03%
Values	Daily Returns

Walmart  vs.  Alpha Lithium

Walmart

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Alpha Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alpha Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Alpha Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Walmart and Alpha Lithium

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

The idea behind Walmart and Alpha Lithium 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.