Correlation Between Walmart and Royce Small-cap

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

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

Diversification Opportunities for Walmart and Royce Small-cap

0.43

Correlation Coefficient

Walmart  Royce Small-cap

Very weak diversification

The 3 months correlation between Walmart and Royce is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Royce Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Small Cap 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 Royce Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Small Cap has no effect on the direction of Walmart i.e., Walmart and Royce Small-cap go up and down completely randomly.

Pair Corralation between Walmart and Royce Small-cap

Considering the 90-day investment horizon Walmart is expected to generate 1.59 times more return on investment than Royce Small-cap. However, Walmart is 1.59 times more volatile than Royce Small Cap Value. It trades about -0.04 of its potential returns per unit of risk. Royce Small Cap Value is currently generating about -0.16 per unit of risk. If you would invest  9,032  in Walmart on December 29, 2024 and sell it today you would lose (469.00) from holding Walmart or give up 5.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Walmart  vs.  Royce Small Cap Value

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.

Royce Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Walmart and Royce Small-cap

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

The idea behind Walmart and Royce Small Cap Value 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.