Correlation Between Costco Wholesale and Canadian Pacific

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

Diversification Opportunities for Costco Wholesale and Canadian Pacific

0.54

Correlation Coefficient

Costco Wholesale  Canadian Pacific

Very weak diversification

The 3 months correlation between Costco and Canadian is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway 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 Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Canadian Pacific go up and down completely randomly.

Pair Corralation between Costco Wholesale and Canadian Pacific

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.97 times more return on investment than Canadian Pacific. However, Costco Wholesale Corp is 1.03 times less risky than Canadian Pacific. It trades about 0.01 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about -0.03 per unit of risk. If you would invest  4,269  in Costco Wholesale Corp on December 30, 2024 and sell it today you would earn a total of  8.00  from holding Costco Wholesale Corp or generate 0.19% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Canadian Pacific Railway

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Canadian Pacific Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Pacific Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Pacific 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 Canadian Pacific

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

The idea behind Costco Wholesale Corp and Canadian Pacific Railway 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.