Correlation Between GM and Walmart
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Walmart, you can compare the effects of market volatilities on GM 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 GM with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Walmart.
Diversification Opportunities for GM and Walmart
Poor diversification
The 3 months correlation between GM and Walmart is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and GM 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 General Motors 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 GM i.e., GM and Walmart go up and down completely randomly.
Pair Corralation between GM and Walmart
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.01 times more return on investment than Walmart. However, GM is 2.01 times more volatile than Walmart. It trades about 0.24 of its potential returns per unit of risk. Walmart is currently generating about 0.18 per unit of risk. If you would invest 3,508 in General Motors on January 26, 2024 and sell it today you would earn a total of 1,000.00 from holding General Motors or generate 28.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Walmart
Performance |
| Timeline |
| General Motors |
| Walmart |
GM and Walmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Walmart
The main advantage of trading using opposite GM and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Walmart vs. Costco Wholesale Corp | Walmart vs. Dollar Tree | Walmart vs. BJs Wholesale Club | Walmart vs. Big Lots |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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