Correlation Between Sally Beauty and Walmart
Can any of the company-specific risk be diversified away by investing in both Sally Beauty 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 Sally Beauty and Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sally Beauty Holdings and Walmart, you can compare the effects of market volatilities on Sally Beauty 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 Sally Beauty with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sally Beauty and Walmart.
Diversification Opportunities for Sally Beauty and Walmart
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Sally and Walmart is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Sally Beauty Holdings and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Sally Beauty 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 Sally Beauty Holdings 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 Sally Beauty i.e., Sally Beauty and Walmart go up and down completely randomly.
Pair Corralation between Sally Beauty and Walmart
Considering the 90-day investment horizon Sally Beauty Holdings is expected to under-perform the Walmart. In addition to that, Sally Beauty is 2.43 times more volatile than Walmart. It trades about -0.01 of its total potential returns per unit of risk. Walmart is currently generating about 0.06 per unit of volatility. If you would invest 4,263 in Walmart on February 6, 2024 and sell it today you would earn a total of 1,719 from holding Walmart or generate 40.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sally Beauty Holdings vs. Walmart
Performance |
| Timeline |
| Sally Beauty Holdings |
| Walmart |
Sally Beauty and Walmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sally Beauty and Walmart
The main advantage of trading using opposite Sally Beauty and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sally Beauty 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 Sally Beauty Holdings 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 the Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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