Correlation Between Masco and Walmart

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

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

Diversification Opportunities for Masco and Walmart

0.9

Correlation Coefficient

Masco  Walmart

Almost no diversification

The 3 months correlation between Masco and Walmart is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Masco 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 Masco are associated (or correlated) with Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Masco i.e., Masco and Walmart go up and down completely randomly.

Pair Corralation between Masco and Walmart

Assuming the 90 days trading horizon Masco is expected to generate 42.03 times less return on investment than Walmart. But when comparing it to its historical volatility, Masco is 22.03 times less risky than Walmart. It trades about 0.13 of its potential returns per unit of risk. Walmart is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  123,374  in Walmart on September 29, 2024 and sell it today you would earn a total of  62,126  from holding Walmart or generate 50.36% return on investment over 90 days.

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

Masco  vs.  Walmart

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Walmart

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masco and Walmart

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

The idea behind Masco and Walmart 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.