Correlation Between Costco Wholesale and First Majestic

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

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

Diversification Opportunities for Costco Wholesale and First Majestic

0.21

Correlation Coefficient

Costco Wholesale  First Majestic

Modest diversification

The 3 months correlation between Costco and First is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and First Majestic Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Majestic Silver 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 First Majestic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Majestic Silver has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and First Majestic go up and down completely randomly.

Pair Corralation between Costco Wholesale and First Majestic

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 15.04 times less return on investment than First Majestic. In addition to that, Costco Wholesale is 1.73 times more volatile than First Majestic Silver. It trades about 0.01 of its total potential returns per unit of risk. First Majestic Silver is currently generating about 0.2 per unit of volatility. If you would invest  45,839  in First Majestic Silver on December 29, 2024 and sell it today you would earn a total of  6,390  from holding First Majestic Silver or generate 13.94% return on investment over 90 days.

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

Costco Wholesale  vs.  First Majestic Silver

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Costco Wholesale is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Majestic Silver

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Majestic Silver are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, First Majestic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and First Majestic

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

The idea behind Costco Wholesale and First Majestic Silver 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.