Correlation Between Brookfield and Costco Wholesale

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

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

Diversification Opportunities for Brookfield and Costco Wholesale

0.84

Correlation Coefficient

Brookfield  Costco Wholesale

Very poor diversification

The 3 months correlation between Brookfield and Costco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield 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 Brookfield 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 Brookfield 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 Brookfield i.e., Brookfield and Costco Wholesale go up and down completely randomly.

Pair Corralation between Brookfield and Costco Wholesale

Assuming the 90 days horizon Brookfield is expected to generate 1.3 times more return on investment than Costco Wholesale. However, Brookfield is 1.3 times more volatile than Costco Wholesale Corp. It trades about 0.26 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.14 per unit of risk. If you would invest  6,804  in Brookfield on September 18, 2024 and sell it today you would earn a total of  1,640  from holding Brookfield or generate 24.1% return on investment over 90 days.

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

Brookfield  vs.  Costco Wholesale Corp

Brookfield

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brookfield and Costco Wholesale

The main advantage of trading using opposite Brookfield and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield 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 Brookfield 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.