Correlation Between Kinder Morgan and COSTCO WHOLESALE

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

By analyzing existing cross correlation between Kinder Morgan and COSTCO WHOLESALE CDR, you can compare the effects of market volatilities on Kinder Morgan 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 Kinder Morgan with a short position of COSTCO WHOLESALE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinder Morgan and COSTCO WHOLESALE.

Diversification Opportunities for Kinder Morgan and COSTCO WHOLESALE

-0.21

Correlation Coefficient

Kinder Morgan  COSTCO WHOLESALE

Very good diversification

The 3 months correlation between Kinder and COSTCO is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR and Kinder Morgan 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 Kinder Morgan 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 CDR has no effect on the direction of Kinder Morgan i.e., Kinder Morgan and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between Kinder Morgan and COSTCO WHOLESALE

Assuming the 90 days horizon Kinder Morgan is expected to generate 0.95 times more return on investment than COSTCO WHOLESALE. However, Kinder Morgan is 1.06 times less risky than COSTCO WHOLESALE. It trades about 0.01 of its potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about -0.09 per unit of risk. If you would invest  2,551  in Kinder Morgan on December 20, 2024 and sell it today you would lose (3.00) from holding Kinder Morgan or give up 0.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Kinder Morgan  vs.  COSTCO WHOLESALE CDR

Kinder Morgan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinder Morgan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kinder Morgan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days COSTCO WHOLESALE CDR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Kinder Morgan and COSTCO WHOLESALE

The main advantage of trading using opposite Kinder Morgan and COSTCO WHOLESALE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinder Morgan 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 Kinder Morgan and COSTCO WHOLESALE CDR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.