Correlation Between Costco Wholesale and Gerdau SA

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

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

Diversification Opportunities for Costco Wholesale and Gerdau SA

0.15

Correlation Coefficient

Costco Wholesale  Gerdau SA

Average diversification

The 3 months correlation between Costco and Gerdau is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA 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 Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Gerdau SA go up and down completely randomly.

Pair Corralation between Costco Wholesale and Gerdau SA

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 0.57 times more return on investment than Gerdau SA. However, Costco Wholesale is 1.76 times less risky than Gerdau SA. It trades about 0.16 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.08 per unit of risk. If you would invest  1,713,808  in Costco Wholesale on October 13, 2024 and sell it today you would earn a total of  239,692  from holding Costco Wholesale or generate 13.99% return on investment over 90 days.

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

Costco Wholesale  vs.  Gerdau SA

Costco Wholesale

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Costco Wholesale showed solid returns over the last few months and may actually be approaching a breakup point.

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Costco Wholesale and Gerdau SA

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

The idea behind Costco Wholesale and Gerdau SA 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.