Correlation Between Walmart and Large Capitalization

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

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

Diversification Opportunities for Walmart and Large Capitalization

0.89

Correlation Coefficient

Walmart  Large Capitalization

Very poor diversification

The 3 months correlation between Walmart and Large is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization 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 Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Walmart i.e., Walmart and Large Capitalization go up and down completely randomly.

Pair Corralation between Walmart and Large Capitalization

Considering the 90-day investment horizon Walmart is expected to generate 1.12 times more return on investment than Large Capitalization. However, Walmart is 1.12 times more volatile than Large Capitalization Growth. It trades about 0.27 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.28 per unit of risk. If you would invest  7,717  in Walmart on September 3, 2024 and sell it today you would earn a total of  1,533  from holding Walmart or generate 19.87% return on investment over 90 days.

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

Walmart  vs.  Large Capitalization Growth

Walmart

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

Large Capitalization

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capitalization Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Large Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Large Capitalization

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

The idea behind Walmart and Large Capitalization Growth 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.