Correlation Between Costco Wholesale and DRI Healthcare

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

Diversification Opportunities for Costco Wholesale and DRI Healthcare

0.05

Correlation Coefficient

Costco Wholesale  DRI Healthcare

Significant diversification

The 3 months correlation between Costco and DRI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and DRI Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRI Healthcare Trust 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 DRI Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRI Healthcare Trust has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and DRI Healthcare go up and down completely randomly.

Pair Corralation between Costco Wholesale and DRI Healthcare

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the DRI Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.14 times less risky than DRI Healthcare. The stock trades about -0.04 of its potential returns per unit of risk. The DRI Healthcare Trust is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,205  in DRI Healthcare Trust on December 22, 2024 and sell it today you would lose (48.00) from holding DRI Healthcare Trust or give up 3.98% of portfolio value over 90 days.

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

Costco Wholesale Corp  vs.  DRI Healthcare Trust

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.

DRI Healthcare Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days DRI Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DRI Healthcare is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and DRI Healthcare

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

The idea behind Costco Wholesale Corp and DRI Healthcare Trust 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.