Correlation Between Microsoft and Costco Wholesale

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

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

Diversification Opportunities for Microsoft and Costco Wholesale

0.93

Correlation Coefficient

Microsoft  Costco Wholesale

Almost no diversification

The 3 months correlation between Microsoft and Costco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Microsoft 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 Microsoft 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 has no effect on the direction of Microsoft i.e., Microsoft and Costco Wholesale go up and down completely randomly.

Pair Corralation between Microsoft and Costco Wholesale

Assuming the 90 days trading horizon Microsoft is expected to generate 1.46 times less return on investment than Costco Wholesale. But when comparing it to its historical volatility, Microsoft is 1.13 times less risky than Costco Wholesale. It trades about 0.17 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  12,014  in Costco Wholesale on September 27, 2024 and sell it today you would earn a total of  2,855  from holding Costco Wholesale or generate 23.76% return on investment over 90 days.

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

Microsoft  vs.  Costco Wholesale

Microsoft

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Costco Wholesale sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Costco Wholesale

The main advantage of trading using opposite Microsoft and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and Costco Wholesale 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.