Can any of the company-specific risk be diversified away by investing in both Walmart and Vanguard Global 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 Vanguard Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and Vanguard Global Ex Us, you can compare the effects of market volatilities on Walmart and Vanguard Global 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 Vanguard Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Vanguard Global.
Diversification Opportunities for Walmart and Vanguard Global
The 3 months correlation between Walmart and Vanguard is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and VANGUARD GLOBAL EX-US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Global Ex-us 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 Vanguard Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Global Ex-us has no effect on the direction of Walmart i.e., Walmart and Vanguard Global go up and down completely randomly.
Pair Corralation between Walmart and Vanguard Global
Considering the 90-day investment horizon Walmart is expected to generate 1.15 times more return on investment than Vanguard Global. However, Walmart is 1.15 times more volatile than Vanguard Global Ex Us. It trades about 0.03 of its potential returns per unit of risk. Vanguard Global Ex Us is currently generating about 0.0 per unit of risk. If you would invest 14,634 in Walmart on September 7, 2023 and sell it today you would earn a total of 939.00 from holding Walmart or generate 6.42% return on investment over 90 days.
Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Global Ex Us are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite Walmart and Vanguard Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, Vanguard Global 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 Vanguard Global will offset losses from the drop in Vanguard Global's long position.
The idea behind Walmart and Vanguard Global Ex Us 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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