Correlation Between Costco Wholesale and SERI INDUSTRIAL

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

Diversification Opportunities for Costco Wholesale and SERI INDUSTRIAL

0.04

Correlation Coefficient

Costco Wholesale  SERI INDUSTRIAL

Significant diversification

The 3 months correlation between Costco and SERI is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and SERI INDUSTRIAL EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SERI INDUSTRIAL EO 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 SERI INDUSTRIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SERI INDUSTRIAL EO has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and SERI INDUSTRIAL go up and down completely randomly.

Pair Corralation between Costco Wholesale and SERI INDUSTRIAL

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.29 times more return on investment than SERI INDUSTRIAL. However, Costco Wholesale Corp is 3.43 times less risky than SERI INDUSTRIAL. It trades about -0.3 of its potential returns per unit of risk. SERI INDUSTRIAL EO is currently generating about -0.14 per unit of risk. If you would invest  92,730  in Costco Wholesale Corp on October 10, 2024 and sell it today you would lose (4,270) from holding Costco Wholesale Corp or give up 4.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Costco Wholesale Corp  vs.  SERI INDUSTRIAL EO

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 fragile basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SERI INDUSTRIAL EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SERI INDUSTRIAL EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Costco Wholesale and SERI INDUSTRIAL

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

The idea behind Costco Wholesale Corp and SERI INDUSTRIAL EO 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.