Correlation Between Costco Wholesale and Capital Drilling

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

By analyzing existing cross correlation between Costco Wholesale Corp and Capital Drilling, you can compare the effects of market volatilities on Costco Wholesale and Capital Drilling 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 Costco Wholesale with a short position of Capital Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Capital Drilling.

Diversification Opportunities for Costco Wholesale and Capital Drilling

0.15

Correlation Coefficient

Costco Wholesale  Capital Drilling

Average diversification

The 3 months correlation between Costco and Capital is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Capital Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Drilling and Costco Wholesale 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 Costco Wholesale Corp are associated (or correlated) with Capital Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Drilling has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Capital Drilling go up and down completely randomly.

Pair Corralation between Costco Wholesale and Capital Drilling

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.44 times more return on investment than Capital Drilling. However, Costco Wholesale Corp is 2.27 times less risky than Capital Drilling. It trades about -0.04 of its potential returns per unit of risk. Capital Drilling is currently generating about -0.11 per unit of risk. If you would invest  95,752  in Costco Wholesale Corp on December 24, 2024 and sell it today you would lose (4,959) from holding Costco Wholesale Corp or give up 5.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Costco Wholesale Corp  vs.  Capital Drilling

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Capital Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Costco Wholesale and Capital Drilling

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

The idea behind Costco Wholesale Corp and Capital Drilling 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.