Correlation Between COSTCO WHOLESALE and Wyndham Hotels

Can any of the company-specific risk be diversified away by investing in both COSTCO WHOLESALE and Wyndham Hotels 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 Wyndham Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between COSTCO WHOLESALE CDR and Wyndham Hotels Resorts, you can compare the effects of market volatilities on COSTCO WHOLESALE and Wyndham Hotels 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 Wyndham Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of COSTCO WHOLESALE and Wyndham Hotels.

Diversification Opportunities for COSTCO WHOLESALE and Wyndham Hotels

0.85

Correlation Coefficient

COSTCO WHOLESALE  Wyndham Hotels

Very poor diversification

The 3 months correlation between COSTCO and Wyndham is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding COSTCO WHOLESALE CDR and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 CDR are associated (or correlated) with Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of COSTCO WHOLESALE i.e., COSTCO WHOLESALE and Wyndham Hotels go up and down completely randomly.

Pair Corralation between COSTCO WHOLESALE and Wyndham Hotels

Assuming the 90 days trading horizon COSTCO WHOLESALE CDR is expected to generate 0.97 times more return on investment than Wyndham Hotels. However, COSTCO WHOLESALE CDR is 1.04 times less risky than Wyndham Hotels. It trades about 0.09 of its potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about 0.06 per unit of risk. If you would invest  1,517  in COSTCO WHOLESALE CDR on October 4, 2024 and sell it today you would earn a total of  1,343  from holding COSTCO WHOLESALE CDR or generate 88.53% return on investment over 90 days.

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

COSTCO WHOLESALE CDR  vs.  Wyndham Hotels Resorts

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Wyndham Hotels Resorts

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wyndham Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COSTCO WHOLESALE and Wyndham Hotels

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

The idea behind COSTCO WHOLESALE CDR and Wyndham Hotels Resorts 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.