Correlation Between Walmart and PriceSmart

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

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

Diversification Opportunities for Walmart and PriceSmart

0.7

Correlation Coefficient

Walmart  PriceSmart

Poor diversification

The 3 months correlation between Walmart and PriceSmart is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and PriceSmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PriceSmart 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 PriceSmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PriceSmart has no effect on the direction of Walmart i.e., Walmart and PriceSmart go up and down completely randomly.

Pair Corralation between Walmart and PriceSmart

Considering the 90-day investment horizon Walmart is expected to under-perform the PriceSmart. In addition to that, Walmart is 1.03 times more volatile than PriceSmart. It trades about -0.05 of its total potential returns per unit of risk. PriceSmart is currently generating about -0.04 per unit of volatility. If you would invest  9,082  in PriceSmart on December 30, 2024 and sell it today you would lose (477.00) from holding PriceSmart or give up 5.25% of portfolio value over 90 days.

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

Walmart  vs.  PriceSmart

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.

PriceSmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days PriceSmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, PriceSmart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Walmart and PriceSmart

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

The idea behind Walmart and PriceSmart 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.