Correlation Between Walmart and Devon Energy

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

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

Diversification Opportunities for Walmart and Devon Energy

-0.67

Correlation Coefficient

Walmart  Devon Energy

Excellent diversification

The 3 months correlation between Walmart and Devon is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Walmart i.e., Walmart and Devon Energy go up and down completely randomly.

Pair Corralation between Walmart and Devon Energy

Assuming the 90 days trading horizon Walmart is expected to generate 0.67 times more return on investment than Devon Energy. However, Walmart is 1.48 times less risky than Devon Energy. It trades about 0.21 of its potential returns per unit of risk. Devon Energy is currently generating about -0.16 per unit of risk. If you would invest  158,648  in Walmart on September 28, 2024 and sell it today you would earn a total of  28,182  from holding Walmart or generate 17.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Walmart  vs.  Devon Energy

Walmart

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 16 (%) 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.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Walmart and Devon Energy

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

The idea behind Walmart and Devon Energy 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.