Correlation Between Costco Wholesale and PENN NATL

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

Diversification Opportunities for Costco Wholesale and PENN NATL

0.51

Correlation Coefficient

Costco Wholesale  PENN NATL

Very weak diversification

The 3 months correlation between Costco and PENN is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and PENN NATL GAMING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN NATL GAMING 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 PENN NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN NATL GAMING has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and PENN NATL go up and down completely randomly.

Pair Corralation between Costco Wholesale and PENN NATL

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.4 times more return on investment than PENN NATL. However, Costco Wholesale Corp is 2.51 times less risky than PENN NATL. It trades about 0.11 of its potential returns per unit of risk. PENN NATL GAMING is currently generating about -0.02 per unit of risk. If you would invest  45,609  in Costco Wholesale Corp on October 26, 2024 and sell it today you would earn a total of  44,011  from holding Costco Wholesale Corp or generate 96.5% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  PENN NATL GAMING

Costco Wholesale Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

PENN NATL GAMING

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, PENN NATL is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Costco Wholesale and PENN NATL

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

The idea behind Costco Wholesale Corp and PENN NATL GAMING 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.