Correlation Between Walmart and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Walmart and BAE Systems 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 BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and BAE Systems PLC, you can compare the effects of market volatilities on Walmart and BAE Systems 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 BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and BAE Systems.
Diversification Opportunities for Walmart and BAE Systems
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Walmart and BAE is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC 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 BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Walmart i.e., Walmart and BAE Systems go up and down completely randomly.
Pair Corralation between Walmart and BAE Systems
Considering the 90-day investment horizon Walmart is expected to under-perform the BAE Systems. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.9 times less risky than BAE Systems. The stock trades about -0.04 of its potential returns per unit of risk. The BAE Systems PLC is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 5,730 in BAE Systems PLC on December 28, 2024 and sell it today you would earn a total of 2,571 from holding BAE Systems PLC or generate 44.87% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Walmart vs. BAE Systems PLC
Performance |
Timeline |
Walmart |
BAE Systems PLC |
Walmart and BAE Systems Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Walmart and BAE Systems
The main advantage of trading using opposite Walmart and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.Walmart vs. Natural Grocers by | Walmart vs. Albertsons Companies | Walmart vs. Ingles Markets Incorporated | Walmart vs. Weis Markets |
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Check out your portfolio center.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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