Correlation Between Costco Wholesale and Lennar

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

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

Diversification Opportunities for Costco Wholesale and Lennar

-0.51

Correlation Coefficient

Costco Wholesale  Lennar

Excellent diversification

The 3 months correlation between Costco and Lennar is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Lennar go up and down completely randomly.

Pair Corralation between Costco Wholesale and Lennar

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 0.69 times more return on investment than Lennar. However, Costco Wholesale is 1.46 times less risky than Lennar. It trades about 0.16 of its potential returns per unit of risk. Lennar is currently generating about 0.07 per unit of risk. If you would invest  6,194  in Costco Wholesale on October 3, 2024 and sell it today you would earn a total of  8,396  from holding Costco Wholesale or generate 135.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	83.76%
Values	Daily Returns

Costco Wholesale  vs.  Lennar

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 weak basic indicators, Costco Wholesale sustained solid returns over the last few months and may actually be approaching a breakup point.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Costco Wholesale and Lennar

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

The idea behind Costco Wholesale and Lennar 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.