Correlation Between Costco Wholesale and Berkshire Hathaway

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway CDR, you can compare the effects of market volatilities on Costco Wholesale and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Berkshire Hathaway.

Diversification Opportunities for Costco Wholesale and Berkshire Hathaway

0.6

Correlation Coefficient

Costco Wholesale  Berkshire Hathaway

Poor diversification

The 3 months correlation between Costco and Berkshire is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Berkshire Hathaway CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway CDR 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway CDR has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Costco Wholesale and Berkshire Hathaway

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 1.0 times more return on investment than Berkshire Hathaway. However, Costco Wholesale Corp is 1.0 times less risky than Berkshire Hathaway. It trades about 0.15 of its potential returns per unit of risk. Berkshire Hathaway CDR is currently generating about 0.02 per unit of risk. If you would invest  4,089  in Costco Wholesale Corp on September 3, 2024 and sell it today you would earn a total of  429.00  from holding Costco Wholesale Corp or generate 10.49% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Berkshire Hathaway CDR

Costco Wholesale Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Berkshire Hathaway CDR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway CDR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and Berkshire Hathaway

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

The idea behind Costco Wholesale Corp and Berkshire Hathaway CDR 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.