Correlation Between Rocky Mountain and Costco Wholesale

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

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

Diversification Opportunities for Rocky Mountain and Costco Wholesale

-0.66

Correlation Coefficient

Rocky Mountain  Costco Wholesale

Excellent diversification

The 3 months correlation between Rocky and Costco is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor 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 Rocky Mountain 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 Rocky Mountain Liquor 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 Rocky Mountain i.e., Rocky Mountain and Costco Wholesale go up and down completely randomly.

Pair Corralation between Rocky Mountain and Costco Wholesale

Assuming the 90 days horizon Rocky Mountain is expected to generate 2.77 times less return on investment than Costco Wholesale. In addition to that, Rocky Mountain is 4.9 times more volatile than Costco Wholesale Corp. It trades about 0.01 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.13 per unit of volatility. If you would invest  2,224  in Costco Wholesale Corp on October 5, 2024 and sell it today you would earn a total of  1,991  from holding Costco Wholesale Corp or generate 89.52% return on investment over 90 days.

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

Rocky Mountain Liquor  vs.  Costco Wholesale Corp

Rocky Mountain Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Mountain Liquor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Costco Wholesale Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Costco Wholesale is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rocky Mountain and Costco Wholesale

The main advantage of trading using opposite Rocky Mountain and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocky Mountain 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 Rocky Mountain Liquor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.