Correlation Between Capital Income and Walmart

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

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

Diversification Opportunities for Capital Income and Walmart

0.91

Correlation Coefficient

Capital Income  Walmart

Almost no diversification

The 3 months correlation between Capital and Walmart is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Capital Income 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 Capital Income Builder 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 Capital Income i.e., Capital Income and Walmart go up and down completely randomly.

Pair Corralation between Capital Income and Walmart

Assuming the 90 days horizon Capital Income is expected to generate 2.45 times less return on investment than Walmart. But when comparing it to its historical volatility, Capital Income Builder is 2.2 times less risky than Walmart. It trades about 0.18 of its potential returns per unit of risk. Walmart is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,133  in Walmart on June 20, 2024 and sell it today you would earn a total of  2,770  from holding Walmart or generate 53.96% return on investment over 90 days.

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

Capital Income Builder  vs.  Walmart

Capital Income Builder

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Walmart

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Income and Walmart

The main advantage of trading using opposite Capital Income and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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 Capital Income Builder 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.