Correlation Between Walmart and NextSource Materials

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Can any of the company-specific risk be diversified away by investing in both Walmart and NextSource Materials 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 NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and NextSource Materials, you can compare the effects of market volatilities on Walmart and NextSource Materials 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 NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and NextSource Materials.

Diversification Opportunities for Walmart and NextSource Materials

-0.85
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Walmart and NextSource is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Walmart i.e., Walmart and NextSource Materials go up and down completely randomly.

Pair Corralation between Walmart and NextSource Materials

Considering the 90-day investment horizon Walmart is expected to generate 0.25 times more return on investment than NextSource Materials. However, Walmart is 3.94 times less risky than NextSource Materials. It trades about 0.16 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.06 per unit of risk. If you would invest  4,978  in Walmart on September 6, 2024 and sell it today you would earn a total of  4,467  from holding Walmart or generate 89.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy99.75%
ValuesDaily Returns

Walmart  vs.  NextSource Materials

 Performance 
       Timeline  
Walmart 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.
NextSource Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NextSource Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Walmart and NextSource Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Walmart and NextSource Materials

The main advantage of trading using opposite Walmart and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, NextSource Materials 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 NextSource Materials will offset losses from the drop in NextSource Materials' long position.
The idea behind Walmart and NextSource Materials 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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