Correlation Between Walmart and Sernova Corp

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

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

Diversification Opportunities for Walmart and Sernova Corp

-0.51

Correlation Coefficient

Walmart  Sernova Corp

Excellent diversification

The 3 months correlation between Walmart and Sernova is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Sernova Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sernova 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 Sernova Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sernova Corp has no effect on the direction of Walmart i.e., Walmart and Sernova Corp go up and down completely randomly.

Pair Corralation between Walmart and Sernova Corp

Considering the 90-day investment horizon Walmart is expected to generate 0.3 times more return on investment than Sernova Corp. However, Walmart is 3.35 times less risky than Sernova Corp. It trades about 0.04 of its potential returns per unit of risk. Sernova Corp is currently generating about -0.03 per unit of risk. If you would invest  4,791  in Walmart on January 31, 2024 and sell it today you would earn a total of  1,233  from holding Walmart or generate 25.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Walmart  vs.  Sernova Corp

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.

Sernova Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sernova Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Walmart and Sernova Corp

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

The idea behind Walmart and Sernova 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.