Correlation Between Walmart and Krispy Kreme

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

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

Diversification Opportunities for Walmart and Krispy Kreme

-0.64

Correlation Coefficient

Walmart  Krispy Kreme

Excellent diversification

The 3 months correlation between Walmart and Krispy is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Krispy Kreme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krispy Kreme 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 Krispy Kreme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krispy Kreme has no effect on the direction of Walmart i.e., Walmart and Krispy Kreme go up and down completely randomly.

Pair Corralation between Walmart and Krispy Kreme

Considering the 90-day investment horizon Walmart is expected to generate 1.06 times more return on investment than Krispy Kreme. However, Walmart is 1.06 times more volatile than Krispy Kreme. It trades about 0.03 of its potential returns per unit of risk. Krispy Kreme is currently generating about -0.71 per unit of risk. If you would invest  8,930  in Walmart on September 24, 2024 and sell it today you would earn a total of  54.00  from holding Walmart or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Walmart  vs.  Krispy Kreme

Walmart

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Walmart and Krispy Kreme

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

The idea behind Walmart and Krispy Kreme 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.