Correlation Between Walmart and Amazon

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

By analyzing existing cross correlation between Walmart and Amazon Inc, you can compare the effects of market volatilities on Walmart and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Amazon.

Diversification Opportunities for Walmart and Amazon

0.85

Correlation Coefficient

Walmart  Amazon

Very poor diversification

The 3 months correlation between Walmart and Amazon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Walmart i.e., Walmart and Amazon go up and down completely randomly.

Pair Corralation between Walmart and Amazon

Considering the 90-day investment horizon Walmart is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.71 times less risky than Amazon. The stock trades about -0.16 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  17,971  in Amazon Inc on January 25, 2024 and sell it today you would lose (17.00) from holding Amazon Inc or give up 0.09% of portfolio value over 90 days.

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

Walmart  vs.  Amazon Inc

Walmart

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Amazon Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Amazon

The main advantage of trading using opposite Walmart and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.

The idea behind Walmart and Amazon Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.