Correlation Between Costco Wholesale and WEG SA
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and WEG SA 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 WEG SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale and WEG SA, you can compare the effects of market volatilities on Costco Wholesale and WEG SA 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 WEG SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and WEG SA.
Diversification Opportunities for Costco Wholesale and WEG SA
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Costco and WEG is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and WEG SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA 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 WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and WEG SA go up and down completely randomly.
Pair Corralation between Costco Wholesale and WEG SA
Assuming the 90 days trading horizon Costco Wholesale is expected to generate 0.94 times more return on investment than WEG SA. However, Costco Wholesale is 1.06 times less risky than WEG SA. It trades about 0.12 of its potential returns per unit of risk. WEG SA is currently generating about 0.06 per unit of risk. If you would invest 6,031 in Costco Wholesale on September 23, 2024 and sell it today you would earn a total of 8,505 from holding Costco Wholesale or generate 141.02% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Costco Wholesale vs. WEG SA
Performance |
Timeline |
Costco Wholesale |
WEG SA |
Costco Wholesale and WEG SA Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Costco Wholesale and WEG SA
The main advantage of trading using opposite Costco Wholesale and WEG SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, WEG SA 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 WEG SA will offset losses from the drop in WEG SA's long position.Costco Wholesale vs. Walmart | Costco Wholesale vs. Target | Costco Wholesale vs. Dollar General | Costco Wholesale vs. AvalonBay Communities |
Check out your portfolio center.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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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