Correlation Between COSTCO WHOLESALE and ALERION CLEANPOWER

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

Diversification Opportunities for COSTCO WHOLESALE and ALERION CLEANPOWER

0.71

Correlation Coefficient

COSTCO WHOLESALE  ALERION CLEANPOWER

Poor diversification

The 3 months correlation between COSTCO and ALERION is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding COSTCO WHOLESALE CDR and ALERION CLEANPOWER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALERION CLEANPOWER 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 ALERION CLEANPOWER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALERION CLEANPOWER has no effect on the direction of COSTCO WHOLESALE i.e., COSTCO WHOLESALE and ALERION CLEANPOWER go up and down completely randomly.

Pair Corralation between COSTCO WHOLESALE and ALERION CLEANPOWER

Assuming the 90 days trading horizon COSTCO WHOLESALE CDR is expected to under-perform the ALERION CLEANPOWER. But the stock apears to be less risky and, when comparing its historical volatility, COSTCO WHOLESALE CDR is 2.14 times less risky than ALERION CLEANPOWER. The stock trades about -0.65 of its potential returns per unit of risk. The ALERION CLEANPOWER is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  1,748  in ALERION CLEANPOWER on October 11, 2024 and sell it today you would lose (102.00) from holding ALERION CLEANPOWER or give up 5.84% of portfolio value over 90 days.

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

COSTCO WHOLESALE CDR  vs.  ALERION CLEANPOWER

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, COSTCO WHOLESALE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ALERION CLEANPOWER

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ALERION CLEANPOWER are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ALERION CLEANPOWER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with COSTCO WHOLESALE and ALERION CLEANPOWER

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

The idea behind COSTCO WHOLESALE CDR and ALERION CLEANPOWER 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.