Correlation Between AECOM TECHNOLOGY and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both AECOM TECHNOLOGY and Costco Wholesale 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 AECOM TECHNOLOGY and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AECOM TECHNOLOGY and Costco Wholesale Corp, you can compare the effects of market volatilities on AECOM TECHNOLOGY and Costco Wholesale 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 AECOM TECHNOLOGY with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of AECOM TECHNOLOGY and Costco Wholesale.

Diversification Opportunities for AECOM TECHNOLOGY and Costco Wholesale

0.85

Correlation Coefficient

AECOM TECHNOLOGY  Costco Wholesale

Very poor diversification

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

Pair Corralation between AECOM TECHNOLOGY and Costco Wholesale

Assuming the 90 days trading horizon AECOM TECHNOLOGY is expected to generate 1.35 times more return on investment than Costco Wholesale. However, AECOM TECHNOLOGY is 1.35 times more volatile than Costco Wholesale Corp. It trades about 0.2 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.2 per unit of risk. If you would invest  8,679  in AECOM TECHNOLOGY on September 12, 2024 and sell it today you would earn a total of  1,921  from holding AECOM TECHNOLOGY or generate 22.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

AECOM TECHNOLOGY  vs.  Costco Wholesale Corp

AECOM TECHNOLOGY

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AECOM TECHNOLOGY are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, AECOM TECHNOLOGY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Costco Wholesale displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AECOM TECHNOLOGY and Costco Wholesale

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

The idea behind AECOM TECHNOLOGY and Costco Wholesale Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.