Correlation Between Rheinmetall and Costco Wholesale

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

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

Diversification Opportunities for Rheinmetall and Costco Wholesale

-0.06

Correlation Coefficient

Rheinmetall  Costco Wholesale

Good diversification

The 3 months correlation between Rheinmetall and Costco is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and Rheinmetall 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 Rheinmetall AG are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of Rheinmetall i.e., Rheinmetall and Costco Wholesale go up and down completely randomly.

Pair Corralation between Rheinmetall and Costco Wholesale

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 2.0 times more return on investment than Costco Wholesale. However, Rheinmetall is 2.0 times more volatile than Costco Wholesale Corp. It trades about 0.39 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.02 per unit of risk. If you would invest  61,900  in Rheinmetall AG on December 26, 2024 and sell it today you would earn a total of  69,875  from holding Rheinmetall AG or generate 112.88% return on investment over 90 days.

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

Rheinmetall AG  vs.  Costco Wholesale Corp

Rheinmetall AG

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rheinmetall and Costco Wholesale

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

The idea behind Rheinmetall AG and Costco Wholesale 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.