Correlation Between Walmart and COSTCO WHOLESALE

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

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

Diversification Opportunities for Walmart and COSTCO WHOLESALE

0.85

Correlation Coefficient

Walmart  COSTCO WHOLESALE

Very poor diversification

The 3 months correlation between Walmart and COSTCO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR 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 COSTCO WHOLESALE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSTCO WHOLESALE CDR has no effect on the direction of Walmart i.e., Walmart and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between Walmart and COSTCO WHOLESALE

Assuming the 90 days horizon Walmart is expected to generate 0.76 times more return on investment than COSTCO WHOLESALE. However, Walmart is 1.31 times less risky than COSTCO WHOLESALE. It trades about 0.3 of its potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about 0.08 per unit of risk. If you would invest  6,993  in Walmart on September 1, 2024 and sell it today you would earn a total of  1,759  from holding Walmart or generate 25.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.48%
Values	Daily Returns

Walmart  vs.  COSTCO WHOLESALE CDR

Walmart

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Walmart reported solid returns over the last few months and may actually be approaching a breakup point.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Walmart and COSTCO WHOLESALE

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

The idea behind Walmart and COSTCO WHOLESALE CDR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.