Correlation Between Walmart and Target Corp

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

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

Diversification Opportunities for Walmart and Target Corp

-0.37

Correlation Coefficient

Walmart  Target Corp

Very good diversification

The 3 months correlation between Walmart and Target is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Target Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Corp 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 Target Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Corp has no effect on the direction of Walmart i.e., Walmart and Target Corp go up and down completely randomly.

Pair Corralation between Walmart and Target Corp

Assuming the 90 days trading horizon Walmart is expected to generate 1.55 times less return on investment than Target Corp. But when comparing it to its historical volatility, Walmart is 21.4 times less risky than Target Corp. It trades about 0.22 of its potential returns per unit of risk. Target Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  13,100  in Target Corp on September 24, 2024 and sell it today you would earn a total of  36.00  from holding Target Corp or generate 0.27% return on investment over 90 days.

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

Walmart  vs.  Target Corp

Walmart

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Walmart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Target Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Walmart and Target Corp

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

The idea behind Walmart and Target Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.