Correlation Between Costco Wholesale and Metalurgica Gerdau

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

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

Diversification Opportunities for Costco Wholesale and Metalurgica Gerdau

0.71

Correlation Coefficient

Costco Wholesale  Metalurgica Gerdau

Poor diversification

The 3 months correlation between Costco and Metalurgica is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Metalurgica Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalurgica Gerdau 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 Metalurgica Gerdau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalurgica Gerdau has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Metalurgica Gerdau go up and down completely randomly.

Pair Corralation between Costco Wholesale and Metalurgica Gerdau

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 0.87 times more return on investment than Metalurgica Gerdau. However, Costco Wholesale is 1.15 times less risky than Metalurgica Gerdau. It trades about 0.2 of its potential returns per unit of risk. Metalurgica Gerdau SA is currently generating about 0.08 per unit of risk. If you would invest  12,493  in Costco Wholesale on September 9, 2024 and sell it today you would earn a total of  2,687  from holding Costco Wholesale or generate 21.51% return on investment over 90 days.

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

Costco Wholesale  vs.  Metalurgica Gerdau SA

Costco Wholesale

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Costco Wholesale sustained solid returns over the last few months and may actually be approaching a breakup point.

Metalurgica Gerdau

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metalurgica Gerdau SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalurgica Gerdau may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Costco Wholesale and Metalurgica Gerdau

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

The idea behind Costco Wholesale and Metalurgica Gerdau SA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.