Correlation Between Costco Wholesale and Dillards

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Dillards 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 Dillards 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 Dillards, you can compare the effects of market volatilities on Costco Wholesale and Dillards 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 Dillards. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Dillards.

Diversification Opportunities for Costco Wholesale and Dillards

0.64

Correlation Coefficient

Costco Wholesale  Dillards

Poor diversification

The 3 months correlation between Costco and Dillards is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Dillards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dillards 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 Dillards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dillards has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Dillards go up and down completely randomly.

Pair Corralation between Costco Wholesale and Dillards

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.61 times more return on investment than Dillards. However, Costco Wholesale Corp is 1.65 times less risky than Dillards. It trades about -0.07 of its potential returns per unit of risk. Dillards is currently generating about -0.13 per unit of risk. If you would invest  90,121  in Costco Wholesale Corp on December 22, 2024 and sell it today you would lose (6,731) from holding Costco Wholesale Corp or give up 7.47% of portfolio value over 90 days.

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

Costco Wholesale Corp  vs.  Dillards

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Dillards

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dillards has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Costco Wholesale and Dillards

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

The idea behind Costco Wholesale Corp and Dillards 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.