Correlation Between Costco Wholesale and Leons Furniture

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

Diversification Opportunities for Costco Wholesale and Leons Furniture

-0.69

Correlation Coefficient

Costco Wholesale  Leons Furniture

Excellent diversification

The 3 months correlation between Costco and Leons is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture 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 Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Leons Furniture go up and down completely randomly.

Pair Corralation between Costco Wholesale and Leons Furniture

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.69 times more return on investment than Leons Furniture. However, Costco Wholesale Corp is 1.45 times less risky than Leons Furniture. It trades about -0.03 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.1 per unit of risk. If you would invest  4,461  in Costco Wholesale Corp on September 28, 2024 and sell it today you would lose (23.00) from holding Costco Wholesale Corp or give up 0.52% of portfolio value over 90 days.

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

Costco Wholesale Corp  vs.  Leons Furniture Limited

Costco Wholesale Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Leons Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Costco Wholesale and Leons Furniture

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

The idea behind Costco Wholesale Corp and Leons Furniture Limited 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.