Correlation Between Walmart and DNA Brands

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

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

Diversification Opportunities for Walmart and DNA Brands

-0.37

Correlation Coefficient

Walmart  DNA Brands

Very good diversification

The 3 months correlation between Walmart and DNA is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and DNA Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DNA Brands 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 DNA Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DNA Brands has no effect on the direction of Walmart i.e., Walmart and DNA Brands go up and down completely randomly.

Pair Corralation between Walmart and DNA Brands

Considering the 90-day investment horizon Walmart is expected to generate 10.58 times less return on investment than DNA Brands. But when comparing it to its historical volatility, Walmart is 23.32 times less risky than DNA Brands. It trades about 0.17 of its potential returns per unit of risk. DNA Brands is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.10  in DNA Brands on September 12, 2024 and sell it today you would lose (0.09) from holding DNA Brands or give up 90.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Walmart  vs.  DNA Brands

Walmart

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

DNA Brands

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DNA Brands are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, DNA Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and DNA Brands

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

The idea behind Walmart and DNA Brands 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.