Correlation Between Big 5 and Wal-Mart
Can any of the company-specific risk be diversified away by investing in both Big 5 and Wal-Mart 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 Big 5 and Wal-Mart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Wal Mart de Mxico, you can compare the effects of market volatilities on Big 5 and Wal-Mart 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 Big 5 with a short position of Wal-Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Wal-Mart.
Diversification Opportunities for Big 5 and Wal-Mart
Modest diversification
The 3 months correlation between Big and Wal-Mart is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Wal Mart de Mxico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de and Big 5 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 Big 5 Sporting are associated (or correlated) with Wal-Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Big 5 i.e., Big 5 and Wal-Mart go up and down completely randomly.
Pair Corralation between Big 5 and Wal-Mart
Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the Wal-Mart. In addition to that, Big 5 is 1.42 times more volatile than Wal Mart de Mxico. It trades about -0.18 of its total potential returns per unit of risk. Wal Mart de Mxico is currently generating about -0.02 per unit of volatility. If you would invest 266.00 in Wal Mart de Mxico on November 27, 2024 and sell it today you would lose (4.00) from holding Wal Mart de Mxico or give up 1.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. Wal Mart de Mxico
Performance |
| Timeline |
| Big 5 Sporting |
| Wal Mart de |
Big 5 and Wal-Mart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Wal-Mart
The main advantage of trading using opposite Big 5 and Wal-Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Wal-Mart 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 Wal-Mart will offset losses from the drop in Wal-Mart's long position.The idea behind Big 5 Sporting and Wal Mart de Mxico 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.| Wal-Mart vs. Ringmetall SE | Wal-Mart vs. ANGLO ASIAN MINING | Wal-Mart vs. GOLDQUEST MINING | Wal-Mart vs. Zijin Mining Group |
Check out your portfolio center.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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