Correlation Between Walmart and Home Depot

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

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

Diversification Opportunities for Walmart and Home Depot

0.42

Correlation Coefficient

Walmart  Home Depot

Very weak diversification

The 3 months correlation between Walmart and Home is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Walmart i.e., Walmart and Home Depot go up and down completely randomly.

Pair Corralation between Walmart and Home Depot

Considering the 90-day investment horizon Walmart is expected to generate 0.87 times more return on investment than Home Depot. However, Walmart is 1.15 times less risky than Home Depot. It trades about 0.04 of its potential returns per unit of risk. Home Depot is currently generating about 0.03 per unit of risk. If you would invest  4,854  in Walmart on January 26, 2024 and sell it today you would earn a total of  1,133  from holding Walmart or generate 23.34% return on investment over 90 days.

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

Walmart  vs.  Home Depot

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.

Home Depot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Depot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Walmart and Home Depot

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

The idea behind Walmart and Home Depot 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.