Correlation Between Costco Wholesale and Birchcliff Energy

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

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

Diversification Opportunities for Costco Wholesale and Birchcliff Energy

-0.04

Correlation Coefficient

Costco Wholesale  Birchcliff Energy

Good diversification

The 3 months correlation between Costco and Birchcliff is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Birchcliff Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Birchcliff Energy 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 Corp are associated (or correlated) with Birchcliff Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Birchcliff Energy has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Birchcliff Energy go up and down completely randomly.

Pair Corralation between Costco Wholesale and Birchcliff Energy

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the Birchcliff Energy. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.56 times less risky than Birchcliff Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Birchcliff Energy is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  501.00  in Birchcliff Energy on December 25, 2024 and sell it today you would earn a total of  144.00  from holding Birchcliff Energy or generate 28.74% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Birchcliff Energy

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Costco Wholesale is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Birchcliff Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Birchcliff Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Birchcliff Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Birchcliff Energy

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

The idea behind Costco Wholesale Corp and Birchcliff Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.