Correlation Between Costco Wholesale and International Business

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

Diversification Opportunities for Costco Wholesale and International Business

0.53

Correlation Coefficient

Costco Wholesale  International Business

Very weak diversification

The 3 months correlation between Costco and International is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and International Business go up and down completely randomly.

Pair Corralation between Costco Wholesale and International Business

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.74 times more return on investment than International Business. However, Costco Wholesale Corp is 1.36 times less risky than International Business. It trades about 0.09 of its potential returns per unit of risk. International Business Machines is currently generating about -0.02 per unit of risk. If you would invest  4,118  in Costco Wholesale Corp on October 20, 2024 and sell it today you would earn a total of  245.00  from holding Costco Wholesale Corp or generate 5.95% 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.  International Business Machine

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.

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, International Business is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and International Business

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

The idea behind Costco Wholesale Corp and International Business Machines 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.