Correlation Between Dollar General and Wal Mart

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

By analyzing existing cross correlation between Dollar General and Wal Mart de, you can compare the effects of market volatilities on Dollar General and Wal Mart 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 Dollar General with a short position of Wal Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dollar General and Wal Mart.

Diversification Opportunities for Dollar General and Wal Mart

0.68

Correlation Coefficient

Dollar General  Wal Mart

Poor diversification

The 3 months correlation between Dollar and Wal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dollar General and Wal Mart de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de and Dollar General 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 Dollar General are associated (or correlated) with Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Dollar General i.e., Dollar General and Wal Mart go up and down completely randomly.

Pair Corralation between Dollar General and Wal Mart

Allowing for the 90-day total investment horizon Dollar General is expected to under-perform the Wal Mart. But the stock apears to be less risky and, when comparing its historical volatility, Dollar General is 1.65 times less risky than Wal Mart. The stock trades about -0.08 of its potential returns per unit of risk. The Wal Mart de is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  300.00  in Wal Mart de on September 28, 2024 and sell it today you would earn a total of  0.00  from holding Wal Mart de or generate 0.0% return on investment over 90 days.

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

Dollar General  vs.  Wal Mart de

Dollar General

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dollar General has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Wal Mart de

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart de are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wal Mart is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dollar General and Wal Mart

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

The idea behind Dollar General and Wal Mart de 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.