diversifiable risk of combining Walmart and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and 3M Company, you can compare the effects of market volatilities on Walmart and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and 3M.
Diversification Opportunities for Walmart and 3M
Pair Corralation between Walmart and 3M
Considering the 90-day investment horizon Walmart is expected to generate 83.73 times more return on investment than 3M. However, Walmart is 83.73 times more volatile than 3M Company. It trades about 0.2 of its potential returns per unit of risk. 3M Company is currently generating about -0.26 per unit of risk. If you would invest 5,610 in Walmart on December 3, 2023 and sell it today you would earn a total of 266.00 from holding Walmart or generate 4.74% return on investment over 90 days.
Walmart vs. 3M Company
Pair Trading with Walmart and 3MThe main advantage of trading using opposite Walmart and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position. The idea behind Walmart and 3M Company 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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