Correlation Between Walmart and GameStop Corp

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

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

Diversification Opportunities for Walmart and GameStop Corp

0.89

Correlation Coefficient

Walmart  GameStop Corp

Very poor diversification

The 3 months correlation between Walmart and GameStop is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp 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 GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Walmart i.e., Walmart and GameStop Corp go up and down completely randomly.

Pair Corralation between Walmart and GameStop Corp

Considering the 90-day investment horizon Walmart is expected to generate 2.93 times less return on investment than GameStop Corp. But when comparing it to its historical volatility, Walmart is 3.36 times less risky than GameStop Corp. It trades about 0.25 of its potential returns per unit of risk. GameStop Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,273  in GameStop Corp on September 26, 2024 and sell it today you would earn a total of  841.00  from holding GameStop Corp or generate 37.0% return on investment over 90 days.

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

Walmart  vs.  GameStop Corp

Walmart

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) 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.

GameStop Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GameStop Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, GameStop Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and GameStop Corp

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

The idea behind Walmart and GameStop Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.