Correlation Between Walmart and Credicorp

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

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

Diversification Opportunities for Walmart and Credicorp

0.9

Correlation Coefficient

Walmart  Credicorp

Almost no diversification

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

Pair Corralation between Walmart and Credicorp

Assuming the 90 days trading horizon Walmart is expected to generate 0.61 times more return on investment than Credicorp. However, Walmart is 1.63 times less risky than Credicorp. It trades about 0.2 of its potential returns per unit of risk. Credicorp is currently generating about 0.09 per unit of risk. If you would invest  157,154  in Walmart on September 27, 2024 and sell it today you would earn a total of  26,348  from holding Walmart or generate 16.77% 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.  Credicorp

Walmart

Risk-Adjusted Performance

15 of 100

Good

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.

Credicorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Credicorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Credicorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Walmart and Credicorp

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

The idea behind Walmart and Credicorp 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.