Correlation Between Costco Wholesale and Mitsubishi UFJ

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

Diversification Opportunities for Costco Wholesale and Mitsubishi UFJ

0.01

Correlation Coefficient

Costco Wholesale  Mitsubishi UFJ

Significant diversification

The 3 months correlation between Costco and Mitsubishi is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Mitsubishi UFJ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi UFJ Financial 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 Mitsubishi UFJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi UFJ Financial has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Mitsubishi UFJ go up and down completely randomly.

Pair Corralation between Costco Wholesale and Mitsubishi UFJ

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the Mitsubishi UFJ. In addition to that, Costco Wholesale is 1.03 times more volatile than Mitsubishi UFJ Financial. It trades about -0.04 of its total potential returns per unit of risk. Mitsubishi UFJ Financial is currently generating about 0.21 per unit of volatility. If you would invest  1,100  in Mitsubishi UFJ Financial on December 25, 2024 and sell it today you would earn a total of  240.00  from holding Mitsubishi UFJ Financial or generate 21.82% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Mitsubishi UFJ Financial

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 very healthy basic indicators, Costco Wholesale is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Mitsubishi UFJ Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Mitsubishi UFJ unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Mitsubishi UFJ

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

The idea behind Costco Wholesale Corp and Mitsubishi UFJ Financial 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..