Correlation Between Costco Wholesale and Grocery Outlet

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

Diversification Opportunities for Costco Wholesale and Grocery Outlet

-0.09

Correlation Coefficient

Costco Wholesale  Grocery Outlet

Good diversification

The 3 months correlation between Costco and Grocery is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding 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 Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Grocery Outlet go up and down completely randomly.

Pair Corralation between Costco Wholesale and Grocery Outlet

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 0.2 times more return on investment than Grocery Outlet. However, Costco Wholesale Corp is 5.1 times less risky than Grocery Outlet. It trades about 0.11 of its potential returns per unit of risk. Grocery Outlet Holding is currently generating about -0.21 per unit of risk. If you would invest  100,472  in Costco Wholesale Corp on December 5, 2024 and sell it today you would earn a total of  3,215  from holding Costco Wholesale Corp or generate 3.2% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Grocery Outlet Holding

Costco Wholesale Corp

Risk-Adjusted Performance

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 comparatively uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Grocery Outlet Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grocery Outlet Holding 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 basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Costco Wholesale and Grocery Outlet

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

The idea behind Costco Wholesale Corp and Grocery Outlet Holding 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.