Correlation Between Walmart and Gap

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

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

Diversification Opportunities for Walmart and Gap

0.61

Correlation Coefficient

Walmart  Gap

Poor diversification

The 3 months correlation between Walmart and Gap is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Gap Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap Inc 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 Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap Inc has no effect on the direction of Walmart i.e., Walmart and Gap go up and down completely randomly.

Pair Corralation between Walmart and Gap

Considering the 90-day investment horizon Walmart is expected to generate 5.56 times less return on investment than Gap. But when comparing it to its historical volatility, Walmart is 3.42 times less risky than Gap. It trades about 0.08 of its potential returns per unit of risk. Gap Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,112  in Gap Inc on January 30, 2024 and sell it today you would earn a total of  1,023  from holding Gap Inc or generate 92.0% return on investment over 90 days.

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

Walmart  vs.  Gap Inc

Walmart

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Gap Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gap Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Gap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and Gap

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

The idea behind Walmart and Gap Inc 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.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.