Correlation Between Walmart and F5 Networks

Can any of the company-specific risk be diversified away by investing in both Walmart and F5 Networks 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 F5 Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walmart and F5 Networks, you can compare the effects of market volatilities on Walmart and F5 Networks 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 F5 Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and F5 Networks.

Diversification Opportunities for Walmart and F5 Networks

0.88

Correlation Coefficient

Walmart  F5 Networks

Very poor diversification

The 3 months correlation between Walmart and FFIV is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and F5 Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on F5 Networks 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 F5 Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of F5 Networks has no effect on the direction of Walmart i.e., Walmart and F5 Networks go up and down completely randomly.

Pair Corralation between Walmart and F5 Networks

Considering the 90-day investment horizon Walmart is expected to generate 0.9 times more return on investment than F5 Networks. However, Walmart is 1.12 times less risky than F5 Networks. It trades about 0.51 of its potential returns per unit of risk. F5 Networks is currently generating about 0.16 per unit of risk. If you would invest  8,170  in Walmart on August 30, 2024 and sell it today you would earn a total of  1,018  from holding Walmart or generate 12.46% return on investment over 90 days.

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

Walmart  vs.  F5 Networks

Walmart

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

F5 Networks

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in F5 Networks are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, F5 Networks showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and F5 Networks

The main advantage of trading using opposite Walmart and F5 Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, F5 Networks 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 F5 Networks will offset losses from the drop in F5 Networks' long position.

The idea behind Walmart and F5 Networks 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.