Correlation Between Costco Wholesale and Delta Air

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

By analyzing existing cross correlation between Costco Wholesale and Delta Air Lines, you can compare the effects of market volatilities on Costco Wholesale and Delta Air 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 Delta Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Delta Air.

Diversification Opportunities for Costco Wholesale and Delta Air

0.84

Correlation Coefficient

Costco Wholesale  Delta Air

Very poor diversification

The 3 months correlation between Costco and Delta is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines 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 are associated (or correlated) with Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Delta Air go up and down completely randomly.

Pair Corralation between Costco Wholesale and Delta Air

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 0.71 times more return on investment than Delta Air. However, Costco Wholesale is 1.41 times less risky than Delta Air. It trades about -0.03 of its potential returns per unit of risk. Delta Air Lines is currently generating about -0.08 per unit of risk. If you would invest  1,936,500  in Costco Wholesale on September 25, 2024 and sell it today you would lose (19,370) from holding Costco Wholesale or give up 1.0% of portfolio value over 90 days.

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

Costco Wholesale  vs.  Delta Air Lines

Costco Wholesale

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Delta Air Lines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Delta Air showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Delta Air

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

The idea behind Costco Wholesale and Delta Air Lines 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.