Can any of the company-specific risk be diversified away by investing in both Walmart and Amplifon SpA 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 Walmart and Amplifon SpA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and Amplifon SpA, you can compare the effects of market volatilities on Walmart and Amplifon SpA 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 Walmart with a short position of Amplifon SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Amplifon SpA.
Diversification Opportunities for Walmart and Amplifon SpA
The 3 months correlation between Walmart and Amplifon is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Amplifon SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amplifon SpA and Walmart 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 Walmart are associated (or correlated) with Amplifon SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amplifon SpA has no effect on the direction of Walmart i.e., Walmart and Amplifon SpA go up and down completely randomly.
Considering the 90-day investment horizon Walmart is expected to generate 0.44 times more return on investment than Amplifon SpA. However, Walmart is 2.28 times less risky than Amplifon SpA. It trades about 0.13 of its potential returns per unit of risk. Amplifon SpA is currently generating about 0.01 per unit of risk. If you would invest 6,036 in Walmart on March 6, 2024 and sell it today you would earn a total of 546.00 from holding Walmart or generate 9.05% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Amplifon SpA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Amplifon SpA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.