Correlation Between Costco Wholesale and Sparx Technology

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

Diversification Opportunities for Costco Wholesale and Sparx Technology

0.76

Correlation Coefficient

Costco Wholesale  Sparx Technology

Poor diversification

The 3 months correlation between Costco and Sparx is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Sparx Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparx Technology 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 Sparx Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparx Technology has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Sparx Technology go up and down completely randomly.

Pair Corralation between Costco Wholesale and Sparx Technology

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 2.61 times less return on investment than Sparx Technology. But when comparing it to its historical volatility, Costco Wholesale Corp is 1.66 times less risky than Sparx Technology. It trades about 0.13 of its potential returns per unit of risk. Sparx Technology is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,163  in Sparx Technology on September 13, 2024 and sell it today you would earn a total of  501.00  from holding Sparx Technology or generate 23.16% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Sparx Technology

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 abnormal technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sparx Technology

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparx Technology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sparx Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Sparx Technology

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

The idea behind Costco Wholesale Corp and Sparx Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.