Correlation Between Costco Wholesale and Falcon Energy

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

Diversification Opportunities for Costco Wholesale and Falcon Energy

0.34

Correlation Coefficient

Costco Wholesale  Falcon Energy

Weak diversification

The 3 months correlation between Costco and Falcon is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials 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 Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Falcon Energy go up and down completely randomly.

Pair Corralation between Costco Wholesale and Falcon Energy

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.33 times more return on investment than Falcon Energy. However, Costco Wholesale Corp is 3.03 times less risky than Falcon Energy. It trades about 0.01 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about -0.05 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Costco Wholesale Corp  vs.  Falcon Energy Materials

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.

Falcon Energy Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Falcon Energy Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Costco Wholesale and Falcon Energy

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

The idea behind Costco Wholesale Corp and Falcon Energy Materials 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.