Correlation Between Costco Wholesale and Okta

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

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

Diversification Opportunities for Costco Wholesale and Okta

0.9

Correlation Coefficient

Costco Wholesale  Okta

Almost no diversification

The 3 months correlation between Costco and Okta is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Okta Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Okta Inc 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 Corp are associated (or correlated) with Okta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Okta Inc has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Okta go up and down completely randomly.

Pair Corralation between Costco Wholesale and Okta

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the Okta. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 2.49 times less risky than Okta. The stock trades about -0.3 of its potential returns per unit of risk. The Okta Inc is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  8,003  in Okta Inc on October 7, 2024 and sell it today you would lose (361.00) from holding Okta Inc or give up 4.51% of portfolio value over 90 days.

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

Costco Wholesale Corp  vs.  Okta Inc

Costco Wholesale Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Okta Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Okta Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Okta reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Okta

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

The idea behind Costco Wholesale Corp and Okta Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.