Correlation Between Costco Wholesale and Sprott Physical

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

Diversification Opportunities for Costco Wholesale and Sprott Physical

-0.39

Correlation Coefficient

Costco Wholesale  Sprott Physical

Very good diversification

The 3 months correlation between Costco and Sprott is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Sprott Physical Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Physical Gold 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 Sprott Physical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Physical Gold has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Sprott Physical go up and down completely randomly.

Pair Corralation between Costco Wholesale and Sprott Physical

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.89 times more return on investment than Sprott Physical. However, Costco Wholesale Corp is 1.12 times less risky than Sprott Physical. It trades about 0.08 of its potential returns per unit of risk. Sprott Physical Gold is currently generating about -0.02 per unit of risk. If you would invest  4,136  in Costco Wholesale Corp on October 27, 2024 and sell it today you would earn a total of  211.00  from holding Costco Wholesale Corp or generate 5.1% 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.  Sprott Physical Gold

Costco Wholesale Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Sprott Physical Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Physical Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sprott Physical is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Costco Wholesale and Sprott Physical

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

The idea behind Costco Wholesale Corp and Sprott Physical Gold 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.