Correlation Between Costco Wholesale and Lloyds Banking

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

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

Diversification Opportunities for Costco Wholesale and Lloyds Banking

0.45

Correlation Coefficient

Costco Wholesale  Lloyds Banking

Very weak diversification

The 3 months correlation between Costco and Lloyds is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group 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 Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Lloyds Banking go up and down completely randomly.

Pair Corralation between Costco Wholesale and Lloyds Banking

Assuming the 90 days trading horizon Costco Wholesale is expected to under-perform the Lloyds Banking. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale is 2.3 times less risky than Lloyds Banking. The stock trades about -0.03 of its potential returns per unit of risk. The Lloyds Banking Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,950  in Lloyds Banking Group on December 22, 2024 and sell it today you would earn a total of  2,650  from holding Lloyds Banking Group or generate 53.54% return on investment over 90 days.

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

Costco Wholesale  vs.  Lloyds Banking Group

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.

Lloyds Banking Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lloyds Banking Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Lloyds Banking showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Lloyds Banking

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

The idea behind Costco Wholesale and Lloyds Banking Group 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.