Correlation Between United Parcel and Costco Wholesale

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

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

Diversification Opportunities for United Parcel and Costco Wholesale

-0.37

Correlation Coefficient

United Parcel  Costco Wholesale

Very good diversification

The 3 months correlation between United and Costco is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding United Parcel Service and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and United Parcel 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 United Parcel Service 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 United Parcel i.e., United Parcel and Costco Wholesale go up and down completely randomly.

Pair Corralation between United Parcel and Costco Wholesale

Assuming the 90 days trading horizon United Parcel Service is expected to under-perform the Costco Wholesale. In addition to that, United Parcel is 1.26 times more volatile than Costco Wholesale. It trades about -0.04 of its total potential returns per unit of risk. Costco Wholesale is currently generating about -0.03 per unit of volatility. If you would invest  1,915,000  in Costco Wholesale on December 24, 2024 and sell it today you would lose (80,685) from holding Costco Wholesale or give up 4.21% of portfolio value over 90 days.

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

United Parcel Service  vs.  Costco Wholesale

United Parcel Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, United Parcel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Costco Wholesale is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Parcel and Costco Wholesale

The main advantage of trading using opposite United Parcel and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Parcel 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 United Parcel Service 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.