Correlation Between Walmart and Rio Tinto

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

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

Diversification Opportunities for Walmart and Rio Tinto

-0.32

Correlation Coefficient

Walmart  Rio Tinto

Very good diversification

The 3 months correlation between Walmart and Rio is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of Walmart i.e., Walmart and Rio Tinto go up and down completely randomly.

Pair Corralation between Walmart and Rio Tinto

Assuming the 90 days trading horizon Walmart is expected to generate 0.65 times more return on investment than Rio Tinto. However, Walmart is 1.54 times less risky than Rio Tinto. It trades about 0.2 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.12 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Walmart  vs.  Rio Tinto Group

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.

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group 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 Rio Tinto

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

The idea behind Walmart and Rio Tinto Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.