Correlation Between Companhia Brasileira and Walmart

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

By analyzing existing cross correlation between Companhia Brasileira de and Walmart, you can compare the effects of market volatilities on Companhia Brasileira and Walmart 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 Companhia Brasileira with a short position of Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia Brasileira and Walmart.

Diversification Opportunities for Companhia Brasileira and Walmart

-0.6

Correlation Coefficient

Companhia Brasileira  Walmart

Excellent diversification

The 3 months correlation between Companhia and Walmart is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Brasileira de and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Companhia Brasileira 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 Companhia Brasileira de are associated (or correlated) with Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Companhia Brasileira i.e., Companhia Brasileira and Walmart go up and down completely randomly.

Pair Corralation between Companhia Brasileira and Walmart

Considering the 90-day investment horizon Companhia Brasileira de is expected to under-perform the Walmart. In addition to that, Companhia Brasileira is 4.03 times more volatile than Walmart. It trades about -0.48 of its total potential returns per unit of risk. Walmart is currently generating about 0.03 per unit of volatility. If you would invest  6,000  in Walmart on January 31, 2024 and sell it today you would earn a total of  24.00  from holding Walmart or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.43%
Values	Daily Returns

Companhia Brasileira de  vs.  Walmart

Companhia Brasileira

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Brasileira de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of sluggish performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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.

Pair Trading with Companhia Brasileira and Walmart

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

The idea behind Companhia Brasileira de and Walmart 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.