Correlation Between Walmart and Target
Can any of the company-specific risk be diversified away by investing in both Walmart and Target 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 Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and Target, you can compare the effects of market volatilities on Walmart and Target 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 Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Target.
Diversification Opportunities for Walmart and Target
Almost no diversification
The 3 months correlation between Walmart and Target is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Walmart i.e., Walmart and Target go up and down completely randomly.
Pair Corralation between Walmart and Target
Considering the 90-day investment horizon Walmart is expected to generate 0.55 times more return on investment than Target. However, Walmart is 1.83 times less risky than Target. It trades about 0.03 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest 4,957 in Walmart on January 25, 2024 and sell it today you would earn a total of 952.00 from holding Walmart or generate 19.21% 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. Target
Performance |
| Timeline |
| Walmart |
| Target |
Walmart and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Walmart and Target
The main advantage of trading using opposite Walmart and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.| Walmart vs. Big Lots | Walmart vs. Aquagold International | Walmart vs. Thrivent High Yield | Walmart vs. Morningstar Unconstrained Allocation |
| Target vs. Big Lots | Target vs. Aquagold International | Target vs. Thrivent High Yield | Target vs. Morningstar Unconstrained Allocation |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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