Correlation Between Costco Wholesale and China DatangRenewable

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

Diversification Opportunities for Costco Wholesale and China DatangRenewable

0.09

Correlation Coefficient

Costco Wholesale  China DatangRenewable

Significant diversification

The 3 months correlation between Costco and China is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and China Datang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China DatangRenewable 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 China DatangRenewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China DatangRenewable has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and China DatangRenewable go up and down completely randomly.

Pair Corralation between Costco Wholesale and China DatangRenewable

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the China DatangRenewable. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 2.0 times less risky than China DatangRenewable. The stock trades about -0.1 of its potential returns per unit of risk. The China Datang is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  24.00  in China Datang on December 20, 2024 and sell it today you would earn a total of  2.00  from holding China Datang or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Costco Wholesale Corp  vs.  China Datang

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 fragile 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.

China DatangRenewable

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Datang are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China DatangRenewable may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Costco Wholesale and China DatangRenewable

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

The idea behind Costco Wholesale Corp and China Datang 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.