Correlation Between Walmart and GE Aerospace

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

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

Diversification Opportunities for Walmart and GE Aerospace

0.34

Correlation Coefficient

Walmart  GE Aerospace

Weak diversification

The 3 months correlation between Walmart and GE Aerospace is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Walmart i.e., Walmart and GE Aerospace go up and down completely randomly.

Pair Corralation between Walmart and GE Aerospace

Considering the 90-day investment horizon Walmart is expected to under-perform the GE Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.03 times less risky than GE Aerospace. The stock trades about -0.05 of its potential returns per unit of risk. The GE Aerospace is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  16,779  in GE Aerospace on December 30, 2024 and sell it today you would earn a total of  3,209  from holding GE Aerospace or generate 19.13% return on investment over 90 days.

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

Walmart  vs.  GE Aerospace

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

GE Aerospace

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and GE Aerospace

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

The idea behind Walmart and GE Aerospace 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.