Correlation Between Walmart and Lowes Companies

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

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

Diversification Opportunities for Walmart and Lowes Companies

0.78

Correlation Coefficient

Walmart  Lowes Companies

Poor diversification

The 3 months correlation between Walmart and Lowes is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Walmart i.e., Walmart and Lowes Companies go up and down completely randomly.

Pair Corralation between Walmart and Lowes Companies

Considering the 90-day investment horizon Walmart is expected to generate 0.83 times more return on investment than Lowes Companies. However, Walmart is 1.2 times less risky than Lowes Companies. It trades about 0.01 of its potential returns per unit of risk. Lowes Companies is currently generating about -0.18 per unit of risk. If you would invest  5,978  in Walmart on February 6, 2024 and sell it today you would earn a total of  4.00  from holding Walmart or generate 0.07% return on investment over 90 days.

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

Walmart  vs.  Lowes Companies

Walmart

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Lowes Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Lowes Companies may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Walmart and Lowes Companies

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

The idea behind Walmart and Lowes Companies 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.