Correlation Between Costco Wholesale and Choice Hotels

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

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

Diversification Opportunities for Costco Wholesale and Choice Hotels

0.86

Correlation Coefficient

Costco Wholesale  Choice Hotels

Very poor diversification

The 3 months correlation between Costco and Choice is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern 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 Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Choice Hotels go up and down completely randomly.

Pair Corralation between Costco Wholesale and Choice Hotels

Assuming the 90 days horizon Costco Wholesale is expected to generate 1.48 times less return on investment than Choice Hotels. But when comparing it to its historical volatility, Costco Wholesale is 1.07 times less risky than Choice Hotels. It trades about 0.16 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  11,073  in Choice Hotels International on September 15, 2024 and sell it today you would earn a total of  2,727  from holding Choice Hotels International or generate 24.63% return on investment over 90 days.

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

Costco Wholesale  vs.  Choice Hotels International

Costco Wholesale

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Costco Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

Choice Hotels Intern

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Choice Hotels

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

The idea behind Costco Wholesale and Choice Hotels International 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.