Correlation Between Costco Wholesale and Constellation Energy

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

Diversification Opportunities for Costco Wholesale and Constellation Energy

-0.34

Correlation Coefficient

Costco Wholesale  Constellation Energy

Very good diversification

The 3 months correlation between Costco and Constellation is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Constellation Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Energy 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 Constellation Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Energy has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Constellation Energy go up and down completely randomly.

Pair Corralation between Costco Wholesale and Constellation Energy

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.86 times less return on investment than Constellation Energy. But when comparing it to its historical volatility, Costco Wholesale Corp is 2.37 times less risky than Constellation Energy. It trades about 0.12 of its potential returns per unit of risk. Constellation Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,395  in Constellation Energy on October 10, 2024 and sell it today you would earn a total of  17,620  from holding Constellation Energy or generate 238.27% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Constellation Energy

Costco Wholesale Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Constellation Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Constellation Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Costco Wholesale and Constellation Energy

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

The idea behind Costco Wholesale Corp and Constellation Energy 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 Valuation module to check real value of public entities based on technical and fundamental data.