Correlation Between COSTCO WHOLESALE and INVITATION HOMES

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

Diversification Opportunities for COSTCO WHOLESALE and INVITATION HOMES

0.5

Correlation Coefficient

COSTCO WHOLESALE  INVITATION HOMES

Very weak diversification

The 3 months correlation between COSTCO and INVITATION is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding COSTCO WHOLESALE CDR and INVITATION HOMES DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INVITATION HOMES 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 INVITATION HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INVITATION HOMES has no effect on the direction of COSTCO WHOLESALE i.e., COSTCO WHOLESALE and INVITATION HOMES go up and down completely randomly.

Pair Corralation between COSTCO WHOLESALE and INVITATION HOMES

Assuming the 90 days trading horizon COSTCO WHOLESALE CDR is expected to generate 1.1 times more return on investment than INVITATION HOMES. However, COSTCO WHOLESALE is 1.1 times more volatile than INVITATION HOMES DL. It trades about 0.1 of its potential returns per unit of risk. INVITATION HOMES DL is currently generating about 0.03 per unit of risk. If you would invest  1,475  in COSTCO WHOLESALE CDR on September 29, 2024 and sell it today you would earn a total of  1,445  from holding COSTCO WHOLESALE CDR or generate 97.97% return on investment over 90 days.

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

COSTCO WHOLESALE CDR  vs.  INVITATION HOMES DL

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with COSTCO WHOLESALE and INVITATION HOMES

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

The idea behind COSTCO WHOLESALE CDR and INVITATION HOMES DL 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.