Correlation Between Walmart and Federal Home

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

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

Diversification Opportunities for Walmart and Federal Home

0.86

Correlation Coefficient

Walmart  Federal Home

Very poor diversification

The 3 months correlation between Walmart and Federal is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Walmart i.e., Walmart and Federal Home go up and down completely randomly.

Pair Corralation between Walmart and Federal Home

Considering the 90-day investment horizon Walmart is expected to generate 4.63 times less return on investment than Federal Home. But when comparing it to its historical volatility, Walmart is 1.52 times less risky than Federal Home. It trades about 0.1 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,680  in Federal Home Loan on October 22, 2024 and sell it today you would earn a total of  137.00  from holding Federal Home Loan or generate 8.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Walmart  vs.  Federal Home Loan

Walmart

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Federal Home Loan

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, Federal Home disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Federal Home

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

The idea behind Walmart and Federal Home Loan 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.