Correlation Between Costco Wholesale and Manufatura

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Manufatura 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 Manufatura into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Costco Wholesale and Manufatura de Brinquedos, you can compare the effects of market volatilities on Costco Wholesale and Manufatura 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 Manufatura. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Manufatura.

Diversification Opportunities for Costco Wholesale and Manufatura

0.02

Correlation Coefficient

Costco Wholesale  Manufatura

Significant diversification

The 3 months correlation between Costco and Manufatura is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Manufatura de Brinquedos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manufatura de Brinquedos 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 are associated (or correlated) with Manufatura. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manufatura de Brinquedos has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Manufatura go up and down completely randomly.

Pair Corralation between Costco Wholesale and Manufatura

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.26 times more return on investment than Manufatura. However, Costco Wholesale is 1.26 times more volatile than Manufatura de Brinquedos. It trades about -0.06 of its potential returns per unit of risk. Manufatura de Brinquedos is currently generating about -0.12 per unit of risk. If you would invest  14,579  in Costco Wholesale on December 30, 2024 and sell it today you would lose (1,215) from holding Costco Wholesale or give up 8.33% of portfolio value over 90 days.

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

Costco Wholesale  vs.  Manufatura de Brinquedos

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Manufatura de Brinquedos

Risk-Adjusted Performance

Very Weak

Over the last 90 days Manufatura de Brinquedos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Costco Wholesale and Manufatura

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

The idea behind Costco Wholesale and Manufatura de Brinquedos 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.