Correlation Between Walmart and Travelers Companies

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

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

Diversification Opportunities for Walmart and Travelers Companies

0.73

Correlation Coefficient

Walmart  Travelers Companies

Poor diversification

The 3 months correlation between Walmart and Travelers is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of Walmart i.e., Walmart and Travelers Companies go up and down completely randomly.

Pair Corralation between Walmart and Travelers Companies

Considering the 90-day investment horizon Walmart is expected to generate 0.41 times more return on investment than Travelers Companies. However, Walmart is 2.46 times less risky than Travelers Companies. It trades about -0.06 of its potential returns per unit of risk. The Travelers Companies is currently generating about -0.12 per unit of risk. If you would invest  6,051  in Walmart on January 26, 2024 and sell it today you would lose (64.00) from holding Walmart or give up 1.06% of portfolio value over 90 days.

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

Walmart  vs.  The Travelers Companies

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.

The Travelers Companies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Walmart and Travelers Companies

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

The idea behind Walmart and The Travelers Companies 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.