Correlation Between Coca Cola and Walmart

Can any of the company-specific risk be diversified away by investing in both Coca Cola 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 Coca Cola and Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Coca Cola and Walmart, you can compare the effects of market volatilities on Coca Cola 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 Coca Cola with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Walmart.

Diversification Opportunities for Coca Cola and Walmart

0.35

Correlation Coefficient

Coca Cola  Walmart

Weak diversification

The 3 months correlation between Coca and Walmart is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Coca Cola 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 The Coca Cola 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 Coca Cola i.e., Coca Cola and Walmart go up and down completely randomly.

Pair Corralation between Coca Cola and Walmart

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 50.56 times less return on investment than Walmart. But when comparing it to its historical volatility, The Coca Cola is 1.28 times less risky than Walmart. It trades about 0.0 of its potential returns per unit of risk. Walmart is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,175  in Walmart on January 20, 2024 and sell it today you would earn a total of  1,751  from holding Walmart or generate 41.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  Walmart

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Coca Cola is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Walmart

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Coca Cola and Walmart

The main advantage of trading using opposite Coca Cola and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola 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 The Coca Cola 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.