Correlation Between Walmart and Energy

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

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

Diversification Opportunities for Walmart and Energy

0.3

Correlation Coefficient

Walmart  Energy

Weak diversification

The 3 months correlation between Walmart and Energy is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Walmart i.e., Walmart and Energy go up and down completely randomly.

Pair Corralation between Walmart and Energy

Considering the 90-day investment horizon Walmart is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 8.54 times less risky than Energy. The stock trades about -0.05 of its potential returns per unit of risk. The Energy and Water is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  0.38  in Energy and Water on December 28, 2024 and sell it today you would lose (0.16) from holding Energy and Water or give up 42.11% of portfolio value over 90 days.

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

Walmart  vs.  Energy and Water

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.

Energy and Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile basic indicators, Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Walmart and Energy

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

The idea behind Walmart and Energy and Water 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.