Correlation Between Costco Wholesale and TRAVEL LEISURE

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and TRAVEL LEISURE 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 TRAVEL LEISURE 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 TRAVEL LEISURE DL 01, you can compare the effects of market volatilities on Costco Wholesale and TRAVEL LEISURE 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 TRAVEL LEISURE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and TRAVEL LEISURE.

Diversification Opportunities for Costco Wholesale and TRAVEL LEISURE

0.92

Correlation Coefficient

Costco Wholesale  TRAVEL LEISURE

Almost no diversification

The 3 months correlation between Costco and TRAVEL is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and TRAVEL LEISURE DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVEL LEISURE DL 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 TRAVEL LEISURE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVEL LEISURE DL has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and TRAVEL LEISURE go up and down completely randomly.

Pair Corralation between Costco Wholesale and TRAVEL LEISURE

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.85 times more return on investment than TRAVEL LEISURE. However, Costco Wholesale Corp is 1.18 times less risky than TRAVEL LEISURE. It trades about -0.07 of its potential returns per unit of risk. TRAVEL LEISURE DL 01 is currently generating about -0.09 per unit of risk. If you would invest  90,121  in Costco Wholesale Corp on December 22, 2024 and sell it today you would lose (6,731) from holding Costco Wholesale Corp or give up 7.47% of portfolio value over 90 days.

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

Costco Wholesale Corp  vs.  TRAVEL LEISURE DL 01

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.

TRAVEL LEISURE DL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRAVEL LEISURE DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic 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 TRAVEL LEISURE

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

The idea behind Costco Wholesale Corp and TRAVEL LEISURE DL 01 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.