Correlation Between Walmart and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Walmart and Northern Lights 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 Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and Northern Lights, you can compare the effects of market volatilities on Walmart and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Northern Lights.
Diversification Opportunities for Walmart and Northern Lights
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Walmart and Northern is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Walmart i.e., Walmart and Northern Lights go up and down completely randomly.
Pair Corralation between Walmart and Northern Lights
Considering the 90-day investment horizon Walmart is expected to generate 1.41 times more return on investment than Northern Lights. However, Walmart is 1.41 times more volatile than Northern Lights. It trades about 0.15 of its potential returns per unit of risk. Northern Lights is currently generating about 0.11 per unit of risk. If you would invest 4,974 in Walmart on August 27, 2024 and sell it today you would earn a total of 4,070 from holding Walmart or generate 81.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walmart vs. Northern Lights
Performance |
| Timeline |
| Walmart |
| Northern Lights |
Walmart and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Walmart and Northern Lights
The main advantage of trading using opposite Walmart and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Walmart vs. Costco Wholesale Corp | Walmart vs. Dollar Tree | Walmart vs. BJs Wholesale Club | Walmart vs. Target |
| Northern Lights vs. Invesco Dynamic Large | Northern Lights vs. Perella Weinberg Partners | Northern Lights vs. HUMANA INC | Northern Lights vs. Aquagold International |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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