Correlation Between Big 5 and Walmart

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Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and Walmart 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 Walmart, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Walmart.

Diversification Opportunities for Big 5 and Walmart

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Big 5 and Walmart is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 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 Big 5 i.e., Big 5 and Walmart go up and down completely randomly.

Pair Corralation between Big 5 and Walmart

Given the investment horizon of 90 days Big 5 Sporting is expected to generate 2.61 times more return on investment than Walmart. However, Big 5 is 2.61 times more volatile than Walmart. It trades about 0.16 of its potential returns per unit of risk. Walmart is currently generating about 0.16 per unit of risk. If you would invest  1,184  in Big 5 Sporting on May 19, 2022 and sell it today you would earn a total of  258.00  from holding Big 5 Sporting or generate 21.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Big 5 Sporting  vs.  Walmart

 Performance (%) 
       Timeline  
Big 5 Sporting 
Big 5 Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Big 5 showed solid returns over the last few months and may actually be approaching a breakup point.

Big 5 Price Channel

Walmart 
Walmart Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

Walmart Price Channel

Big 5 and Walmart Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big 5 and Walmart

The main advantage of trading using opposite Big 5 and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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.
The idea behind Big 5 Sporting and Walmart 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.
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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