Correlation Between Insurance Australia and Costco Wholesale

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

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

Diversification Opportunities for Insurance Australia and Costco Wholesale

0.93

Correlation Coefficient

Insurance Australia  Costco Wholesale

Almost no diversification

The 3 months correlation between Insurance and Costco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group 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 Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and Costco Wholesale go up and down completely randomly.

Pair Corralation between Insurance Australia and Costco Wholesale

Assuming the 90 days horizon Insurance Australia is expected to generate 1.12 times less return on investment than Costco Wholesale. In addition to that, Insurance Australia is 1.24 times more volatile than Costco Wholesale Corp. It trades about 0.08 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.12 per unit of volatility. If you would invest  44,896  in Costco Wholesale Corp on October 5, 2024 and sell it today you would earn a total of  44,214  from holding Costco Wholesale Corp or generate 98.48% return on investment over 90 days.

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

Insurance Australia Group  vs.  Costco Wholesale Corp

Insurance Australia

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insurance Australia and Costco Wholesale

The main advantage of trading using opposite Insurance Australia and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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 Insurance Australia Group 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..