Correlation Between Walmart and SP Funds
Can any of the company-specific risk be diversified away by investing in both Walmart and SP Funds 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 SP Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and SP Funds Dow, you can compare the effects of market volatilities on Walmart and SP Funds 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 SP Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and SP Funds.
Diversification Opportunities for Walmart and SP Funds
Excellent diversification
The 3 months correlation between Walmart and SPSK is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow 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 SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of Walmart i.e., Walmart and SP Funds go up and down completely randomly.
Pair Corralation between Walmart and SP Funds
Considering the 90-day investment horizon Walmart is expected to generate 2.75 times more return on investment than SP Funds. However, Walmart is 2.75 times more volatile than SP Funds Dow. It trades about 0.4 of its potential returns per unit of risk. SP Funds Dow is currently generating about -0.02 per unit of risk. If you would invest 8,275 in Walmart on August 27, 2024 and sell it today you would earn a total of 769.00 from holding Walmart or generate 9.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walmart vs. SP Funds Dow
Performance |
| Timeline |
| Walmart |
| SP Funds Dow |
Walmart and SP Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Walmart and SP Funds
The main advantage of trading using opposite Walmart and SP Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, SP Funds 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 SP Funds will offset losses from the drop in SP Funds' long position.| Walmart vs. Innovative Food Hldg | Walmart vs. Calavo Growers | Walmart vs. The Chefs Warehouse | Walmart vs. AMCON Distributing |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP Funds as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP Funds' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP Funds' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP Funds Dow.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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