Correlation Between ITALIAN WINE and COSTCO WHOLESALE

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

By analyzing existing cross correlation between ITALIAN WINE BRANDS and COSTCO WHOLESALE CDR, you can compare the effects of market volatilities on ITALIAN WINE 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 ITALIAN WINE with a short position of COSTCO WHOLESALE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITALIAN WINE and COSTCO WHOLESALE.

Diversification Opportunities for ITALIAN WINE and COSTCO WHOLESALE

0.41

Correlation Coefficient

ITALIAN WINE  COSTCO WHOLESALE

Very weak diversification

The 3 months correlation between ITALIAN and COSTCO is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ITALIAN WINE BRANDS and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR and ITALIAN WINE 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 ITALIAN WINE BRANDS 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 CDR has no effect on the direction of ITALIAN WINE i.e., ITALIAN WINE and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between ITALIAN WINE and COSTCO WHOLESALE

Assuming the 90 days horizon ITALIAN WINE is expected to generate 1.61 times less return on investment than COSTCO WHOLESALE. But when comparing it to its historical volatility, ITALIAN WINE BRANDS is 2.09 times less risky than COSTCO WHOLESALE. It trades about 0.09 of its potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,920  in COSTCO WHOLESALE CDR on September 22, 2024 and sell it today you would earn a total of  60.00  from holding COSTCO WHOLESALE CDR or generate 2.05% return on investment over 90 days.

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

ITALIAN WINE BRANDS  vs.  COSTCO WHOLESALE CDR

ITALIAN WINE BRANDS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ITALIAN WINE BRANDS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ITALIAN WINE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fragile basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ITALIAN WINE and COSTCO WHOLESALE

The main advantage of trading using opposite ITALIAN WINE and COSTCO WHOLESALE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITALIAN WINE 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 ITALIAN WINE BRANDS and COSTCO WHOLESALE CDR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.