Correlation Between Walmart and Booking Holdings

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

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

Diversification Opportunities for Walmart and Booking Holdings

0.94

Correlation Coefficient

Walmart  Booking Holdings

Almost no diversification

The 3 months correlation between Walmart and Booking is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Booking Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booking Holdings 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 Booking Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Booking Holdings has no effect on the direction of Walmart i.e., Walmart and Booking Holdings go up and down completely randomly.

Pair Corralation between Walmart and Booking Holdings

Assuming the 90 days trading horizon Walmart is expected to generate 1.25 times less return on investment than Booking Holdings. But when comparing it to its historical volatility, Walmart is 1.24 times less risky than Booking Holdings. It trades about 0.24 of its potential returns per unit of risk. Booking Holdings is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  12,973  in Booking Holdings on September 23, 2024 and sell it today you would earn a total of  4,156  from holding Booking Holdings or generate 32.04% return on investment over 90 days.

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

Walmart  vs.  Booking Holdings

Walmart

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Walmart sustained solid returns over the last few months and may actually be approaching a breakup point.

Booking Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Booking Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Booking Holdings

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

The idea behind Walmart and Booking Holdings 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.