Correlation Between Target and Walmart
Can any of the company-specific risk be diversified away by investing in both Target 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 Target and Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target and Walmart, you can compare the effects of market volatilities on Target 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 Target with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and Walmart.
Diversification Opportunities for Target and Walmart
Very good diversification
The 3 months correlation between Target and Walmart is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Target and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Target 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 Target 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 Target i.e., Target and Walmart go up and down completely randomly.
Pair Corralation between Target and Walmart
Considering the 90-day investment horizon Target is expected to under-perform the Walmart. In addition to that, Target is 2.06 times more volatile than Walmart. It trades about -0.01 of its total potential returns per unit of risk. Walmart is currently generating about 0.12 per unit of volatility. If you would invest 4,963 in Walmart on August 23, 2024 and sell it today you would earn a total of 3,876 from holding Walmart or generate 78.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target vs. Walmart
Performance |
| Timeline |
| Target |
| Walmart |
Target and Walmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target and Walmart
The main advantage of trading using opposite Target and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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.| Target vs. Costco Wholesale Corp | Target vs. BJs Wholesale Club | Target vs. Dollar Tree | Target vs. Dollar General |
| Walmart vs. Costco Wholesale Corp | Walmart vs. Dollar Tree | Walmart vs. BJs Wholesale Club | Walmart vs. Target |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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