Correlation Between Costco Wholesale and MAG Silver

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

Diversification Opportunities for Costco Wholesale and MAG Silver

0.42

Correlation Coefficient

Costco Wholesale  MAG Silver

Very weak diversification

The 3 months correlation between Costco and MAG is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and MAG Silver Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAG Silver Corp 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 MAG Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAG Silver Corp has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and MAG Silver go up and down completely randomly.

Pair Corralation between Costco Wholesale and MAG Silver

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the MAG Silver. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.85 times less risky than MAG Silver. The stock trades about -0.06 of its potential returns per unit of risk. The MAG Silver Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,000  in MAG Silver Corp on December 21, 2024 and sell it today you would earn a total of  291.00  from holding MAG Silver Corp or generate 14.55% 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.  MAG Silver Corp

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.

MAG Silver Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MAG Silver Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, MAG Silver displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and MAG Silver

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

The idea behind Costco Wholesale Corp and MAG Silver Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.