Correlation Between Walmart and Oil Equipment

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

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

Diversification Opportunities for Walmart and Oil Equipment

0.67

Correlation Coefficient

Walmart  Oil Equipment

Poor diversification

The 3 months correlation between Walmart and Oil is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services 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 Oil Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Walmart i.e., Walmart and Oil Equipment go up and down completely randomly.

Pair Corralation between Walmart and Oil Equipment

Considering the 90-day investment horizon Walmart is expected to under-perform the Oil Equipment. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 2.5 times less risky than Oil Equipment. The stock trades about -0.06 of its potential returns per unit of risk. The Oil Equipment Services is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11,396  in Oil Equipment Services on January 26, 2024 and sell it today you would earn a total of  14.00  from holding Oil Equipment Services or generate 0.12% return on investment over 90 days.

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

Walmart  vs.  Oil Equipment Services

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.

Oil Equipment Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Equipment Services are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oil Equipment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Oil Equipment

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

The idea behind Walmart and Oil Equipment Services 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 Stocks Directory module to find actively traded stocks across global markets.