Correlation Between Microsoft and Walmart
Can any of the company-specific risk be diversified away by investing in both Microsoft and Walmart 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 Microsoft and Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Walmart, you can compare the effects of market volatilities on Microsoft and Walmart 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 Microsoft with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Walmart.
Diversification Opportunities for Microsoft and Walmart
Almost no diversification
The 3 months correlation between Microsoft and Walmart is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Microsoft 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 Microsoft are associated (or correlated) with Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Microsoft i.e., Microsoft and Walmart go up and down completely randomly.
Pair Corralation between Microsoft and Walmart
Assuming the 90 days trading horizon Microsoft is expected to generate 0.89 times more return on investment than Walmart. However, Microsoft is 1.13 times less risky than Walmart. It trades about 0.21 of its potential returns per unit of risk. Walmart is currently generating about 0.04 per unit of risk. If you would invest 39,665 in Microsoft on September 24, 2024 and sell it today you would earn a total of 2,165 from holding Microsoft or generate 5.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Walmart
Performance |
| Timeline |
| Microsoft |
| Walmart |
Microsoft and Walmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Walmart
The main advantage of trading using opposite Microsoft and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Walmart 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 Walmart will offset losses from the drop in Walmart's long position.| Microsoft vs. Fast Retailing Co | Microsoft vs. MARKET VECTR RETAIL | Microsoft vs. RETAIL FOOD GROUP | Microsoft vs. National Beverage Corp |
| Walmart vs. PLAYMATES TOYS | Walmart vs. Summit Materials | Walmart vs. Media and Games | Walmart vs. Applied Materials |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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