Correlation Between Walmart and British Amer

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

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

Diversification Opportunities for Walmart and British Amer

0.31

Correlation Coefficient

Walmart  British Amer

Weak diversification

The 3 months correlation between Walmart and British is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Walmart i.e., Walmart and British Amer go up and down completely randomly.

Pair Corralation between Walmart and British Amer

Considering the 90-day investment horizon Walmart is expected to generate 0.76 times more return on investment than British Amer. However, Walmart is 1.32 times less risky than British Amer. It trades about 0.08 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.04 per unit of risk. If you would invest  4,981  in Walmart on January 26, 2024 and sell it today you would earn a total of  1,006  from holding Walmart or generate 20.2% return on investment over 90 days.

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

Walmart  vs.  British American Tobacco

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 uncertain primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in May 2024.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Walmart and British Amer

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

The idea behind Walmart and British American Tobacco 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.