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

Walmart  BAE Systems

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

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

BAE Systems PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BAE Systems PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, BAE Systems showed solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind Walmart and BAE Systems PLC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.