Correlation Between Walmart and Coca Cola

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

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

Diversification Opportunities for Walmart and Coca Cola

0.39

Correlation Coefficient

Walmart  Coca Cola

Weak diversification

The 3 months correlation between Walmart and Coca is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola 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 Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Walmart i.e., Walmart and Coca Cola go up and down completely randomly.

Pair Corralation between Walmart and Coca Cola

Considering the 90-day investment horizon Walmart is expected to under-perform the Coca Cola. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.11 times less risky than Coca Cola. The stock trades about -0.06 of its potential returns per unit of risk. The The Coca Cola is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,054  in The Coca Cola on January 26, 2024 and sell it today you would earn a total of  101.00  from holding The Coca Cola or generate 1.67% 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.  The Coca Cola

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

Coca Cola

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Walmart and Coca Cola

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

The idea behind Walmart and The Coca Cola 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.