Correlation Between Walmart and GENERAL

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

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

Diversification Opportunities for Walmart and GENERAL

-0.61

Correlation Coefficient

Walmart  GENERAL

Excellent diversification

The 3 months correlation between Walmart and GENERAL is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Walmart i.e., Walmart and GENERAL go up and down completely randomly.

Pair Corralation between Walmart and GENERAL

Considering the 90-day investment horizon Walmart is expected to generate 12.5 times less return on investment than GENERAL. But when comparing it to its historical volatility, Walmart is 43.63 times less risky than GENERAL. It trades about 0.14 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,570  in GENERAL ELEC CAP on October 10, 2024 and sell it today you would lose (577.00) from holding GENERAL ELEC CAP or give up 4.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.38%
Values	Daily Returns

Walmart  vs.  GENERAL ELEC CAP

Walmart

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walmart and GENERAL

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

The idea behind Walmart and GENERAL ELEC CAP 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.